All Forum Posts by: Marcello Di Gerlando

Thankyou all for the great advice and info leads. love BP!

I have an opportunity to work with some folks in Walnut Creek CA, that's in Contra Costa County about 15 miles east of Oakland.

I want to able to do title searches from Colorado. What are auction investors in CA using to see the status of title?

They are eager to JV with me here in Colorado on the condition we can transfer what we are doing here to Walnut Creek CA.

I'm a cash buyer fix flip and hold SFH and typically pick up properties at auction. I am under no illusion that the auction process in CA is the same as CO.

I don't have any experiencing operating outside of CO and I would appreciate any insight in to CA auction process. step by step/ how too etc. Thanks.

Colorado Springs is the same. I run really tight numbers accounting for everything down to the light switch covers, then add a sensible percentage for contingencies. I know I'm going to make thin margins but if I can average 12% 6month ROI I'm ok with it. It's just tough to find deals.

Thank you all for your feedback! I will continue to explore options in hard money lending. I like the idea and I believe I can attract a good customer base.

However, not being in the lending business and not understanding the basics is not a good start. I will be looking to partner with someone local who has a track record of writing loans and see if we can do a deal.

I will also see if I can issue a loan to folks I know well. Get my feet wet kind of deal.

I will definitely be looking for third party folks that would be able to service the loan and manage the payments etc.

Looking at this more closely it’s becoming clearer that the terms are a small slice of this pie there is much more to this business that I will need to be savvy about.

@Chris T.

I don’t think I would ever be involved with anyone whom I didn’t feel was forthcoming with all pertinent information. I don’t care how lucrative any deal was. If this guy is not telling you everything; be careful. I hope things work out for you. Keep us posted on your deals. Good luck!

I bought two houses this year at auction. I did not buy title insurance on either. I did however conduct a title search through my title company to see if there were any liens on the property. The search allowed me to make a decision -BEFORE- I bid on the property.

Not sure of the laws in your area. But how do you know that you bid on the first lien? You may have bought a second or third position. Do you have the title deed in your name already?

This is a common pitfall for folks unfamiliar with the auction process. Folks will think they are bidding on a property’s first position when in fact they are bidding on a junior lien and in fact will not own anything except a non performing note. Dangerous.

I don’t know how much title insurance will protect you at this point. By the time you have signed all the title docs you will probably have indemnified the insurance folks of all liability except for the most obscure and rare clauses i.e. someone has some ancient mineral rights to the land.

The title searches I do only show me if there are any financial encumbrance. It does not show me if there are issues with the property itself i.e. water rights, covenant violations, zoning issues, easements etc.

Just because I have purchased properties without insurance; in no way do I recommend anyone to do the same if they are not willing to lose the property.

@Bill S. You are correct sir.

Properties that have been professionally mitigated for Meth do not have to be disclosed and can be resold.

However, with the margins thin as they are at auction, I would personally, not incur that additional expense and risk.

Hi William,

I purchased two properties this year at auction in Colorado, below is how I go through the process.

Caveat; Colorado is unique among all 50 states in that the Trustee of the county, holds in trust properties that are in default, when the time comes the trustee holds the auction where the bank sets the starting bid price. All properties are sold, as is, where is, cash only. Buyer is responsible for everything; evictions, liens etc

Consult with a real estate attorney to understand what you are getting into, there are traps that could bankrupt you.

Here is how I handle things:

• 1)List of properties going to auction comes out once a week. I have 22hrs to complete my due diligence and do a drive-by on properties that meet my criteria.
• 2)I do internet research on the properties – Building Dep, Zillow, County assessor, Alpha listing (known meth labs). My research takes about an hour and I often select about 5 or 6 properties out of about 20. If something looks promising after I do my beer math I then jump in the car to view the properties the best I can.
• 3)I do my drive by. If I can get in I will. If I like any of the properties I will call my local title company secretary and order an O and E report, Owner and Encumbrance report. I always call before 3pm this way I have the reports by 5pm. O and E's give me lien and tax data and shows me if the sale is even the first mortgage. I will also call my realestate agent to have him double check ARV's and pull any additional data on the property and the surroundings.
• 4)Go home and run my numbers tight, over and over again. I over estimate where I can to give me a cushion. I set my price the night before, I always know my ceiling. At this point I have narrowed down which property I will bid on. More often than not I am down to one property.
• 5)In the morning I draw a cashier’s check for my max bid. Attend the auction and join the fray. Lots of bidding strategies not sure how useful they are. However, I will often hang back if there are multiple bidders and bid when most people drop off. Hopefully at this point I win the bid.
• 6)After the purchase there is a redemption period of 9 days in Colorado, where as any junior lien holders can file an intent to redeem. Meaning a junior lien holder has the right to purchase the property from me at my cost plus interest and expenses.

Below are some of the most critical things I consider before I buy; you may want to do the same, this is not a be all/end all list. Know what you are getting into.

• 1)Check Alpha list or its equivalent in your area. Know if you are bidding on a meth lab. Impossible to resell. Don’t do it. CHECK IF IT WAS A METHLAB
• 2)RUN O& E REPORT or its equivalent in your area. It costs me $5, I hear in NJ they run $100. You have to check for liens to see if there are any financial encumbrances associated with the property. You could buy title insurance. I don’t. You could also purchase the property with the liens and pay the liens. There are strategies in paying off liens. You could offer the second/third lien holder pennies on the dollar. I haven’t done that, I simply stay away.
• 3)Don’t ever over bid. Run your numbers real tight. BP has several flip calculators in the file resources. I personally don’t care for BP’s online version. DON’T OVER PAY.
• 4)Understand the REDEMPTION process. States have different laws in this regard. I understand that in some states it could take up to a year or more for the title to vest in the buyer’s name. There could also be issues with you being able to resell within a certain time frame 30, 60, 90 days check with your attorney.

Bottom line is you have to do your due diligence and homework, speak to a good real estate attorney about the auction process in your state. It will pay off. Good luck!

Thanks for the feed back. Below is what im considering for terms. also, how can I get the title in my name and issue the loan?

• 90% of the purchase price loaned for property purchase. Maximum Purchase price (MPP) cannot exceed 70% of the After Rehab Value (ARV)

Example:

Appraised ARV= $150,000

70% of Appraised ARV would be equal to the MPP = $105,000

90% of MPP loaned for property= $94,500

In the above example borrower would put a down payment equal to 10% MPP or $10,500.

• 15% fixed rate, interest only, payments due monthly.
• 9 month loan – no pre-payment penalty, 6 month extensions would incur 2 additional points.

• 100% Rehab loan not to exceed 12% of ARV held in escrow and released upon completed and evaluated work.

Example: ARV=$150,000

Rehab loan equal to 12% of ARV = $18000

• 3 points ( up front or behind?)
• Processing and under writing = $1900 ( est )

I seem to have an opportunity to expand into Hard Money/private lending here in Colorado Springs and I am looking for some pointers to ensure I don’t fall into avoidable traps and beginner mistakes or become victim to scammers.

I have my real estate attorney on my side and an attorney friend who both have experience writing hard money contracts. However, they are neither real estate investors nor lenders themselves.

I am looking for ways that will generate returns similar to what I am getting on my flips, also interested in keeping title in my name or third party. Some skin in the game from the borrower is a must but I am unsure what is working out there. I will also be evaluating all the properties personally.

I know this is not enough info to evaluate a deal. However, I am only looking for general terms and conditions that private lenders are using successfully. Is it even legal/ethical to maintain title? What about rehab costs? Are there other creative ways I should be considering?