All Forum Posts by: Victor Menasce

The minimum legal requirement is for the buyer to sign the assignment of contract along with you, the interim buyer. However, there may be ramifications and liability to you if the new buyer fails to close. I recommend additional agreements between you and the buyer to ensure that the buyer agrees to hold you harmless. They should also agree to indemnify you (cover any expenses in case you get sued). In exchange, you may need to warrant that the agreement of purchase and sale is valid. This may require an estoppel certificate from the seller. I know that this is starting to sound complex. But you're not selling a property. You're selling a contract for thousands of dollars. That contract better be of high quality. The $10 version of the internet, or the one you got in a 3 day seminar isn't high enough quality in my opinion. I've done several assignments in various states and provinces. The protection is in the additional agreements. Get good legal advice. Good agreements cover what happens when things go wrong.

I'm a Canadian resident investing in the US. My company is based in Chicago. Getting traditional bank financing from a US bank depends on a lot of factors including location, size of the loan, commercial versus residential, portfolio, experience, etc. Generally it is very difficult. But there are a few options. 1) Find a local partner and have them be the principal signor and guarantor on the loan. I do this right now in 6 different cities across the US. 2) If you're Canadian, a few of the Canadian banks have programs for US investment through their US subsidiaries. But there are restrictions. 3) There are a few lenders that will lend internationally, but these are usually short term loans for bridge financing and construction. Give me some additional details, and I can make some suggestions. Victor Menasce Author of "The Great Canadian TakeOver" President of Ottawa Real Estate Investors Organization.

I'd contact the party who bought the land for $180k directly. If they're a commercial buyer who is looking to develop land in the area, then strike a deal with them. 

They may not be ready to buy the land right now. You can sell it to them with Seller financing on, say, a 2 year term. Take a downpayment of perhaps $30,000 or $60,000. If they fail to build on it in that time and pay you out, then you can take it back.  

If they're not interested, look for other builders who might be interested and do a similar deal with another builder.

@Louis Leone @Chester Transo. All good points. We have several basic principles that we live by in my company. I recommend this for you too.

1) Yes. No Money down deals are the holy grail. But no money down deals are very difficult to create from inception. So we turn our conventional deals into no-money-down within 12-18 months by using a refinance as an interim exit.

2) In order for that to work you need to create 30% "net profit margin" as if you were going to sell the property. But you refinance it instead of selling it. That 30% lift is key. Not 20%, not 25%, it must be 30% margin.

3) Aim to refinance at 70% Loan to Value. Yes, you can theoretically get loans at 80% loan to value ratio (LTV). But they're much more expensive. The interest rates are much lower at 70% LTV. And if you face a cost over-run in your construction, then you have no margin of safety. If I target 70%, and have an over-run, I can refinance at, say, 75% loan to value. I'm still pretty safe. But if I aim for 80%, and experience an over-run, I have no place to go.

4) Choose locations that are next to VERY HIGH DEMAND areas. That means they're expensive. That demand will create value for your product by associating it with the high value neighbourhood. But you have to build a large enough project to be convincing to the marketplace. A single family home won't do it. You need to do several in a row. That way the market, the realtors, the bank, the appraiser will all be convinced that you've created value.

5) Finally, this gives you the flexibility of recirculating capital every 12-18 months into new projects. This dramatically improves the scalability of the business. 

Hope that's clear. I'm happy to answer any questions, except which specific neighbourhoods we're developing in. This is simply too public a forum for that.

I was thinking about this situation as to why the HOA might have a problem with company ownership. It likely has to do with the lending environment since 2008. Here's what I think is happening. You could talk to the HOA to confirm it.

Banks have been reluctant to lend against condos since 2008. The reason for this is that the financial health of an HOA can be difficult to assess and maintain over the life of a loan. When a bank lends money to a borrower, they need to qualify the borrower and the property. If the property is a condo, they also need to qualify the HOA. The banks have found that HOA's where the owner occupancy is high seem to perform better than those with a high proportion of tenants.

Some lenders have stopped lending against condos altogether. Others will lend if the condo meets certain criteria such as:

• Good condo fee payment history
• Up to date filings and tax returns
• Healthy Reserve Fund
• Owner occupancy above a threshold (e.g. 70%, 80%, 90%, 100%)

If the HOA doesn't meet the owner occupancy target, then the bank will disqualify the entire condo project for borrowing. That's a huge problem that could have dire consequences for all of the unit owners in the condo project. That would dramatically affect the valuations of all the units.

I can see where the HOA is coming from. They would argue that a company owned unit isn't owner occupied. They're trying to protect the rest of the HOA from being disqualified. A vacant unit that looks like crap (however undesirable) is still better than the condo project being disqualified for borrowing.

On the other hand, a bad unit is also a problem, albeit a smaller problem. I would suggest talking with the HOA to see how you can get their support to complete the renovation and still get what they need.

Send me a personal message and we can brainstorm a few ideas on how to approach the HOA.

Hope that helps.

@Chester Transo, I agree that our projects are still leveraged. But we're not leveraged to the max. We recommend a loan to value ration of 70%. That still leaves 30% equity in the deal, even if there is no cash tied up. That's a pretty safe ratio. 

In addition, we target debt coverage ratios of 1.4 or better. Sometimes we don't achieve that in the real world and can only get 1.3. But that's still pretty strong. 

Finally, we tend to go long on our mortgage terms and secure fixed rates whenever we can. We'd rather pay slightly higher fixed rates that are locked in for a 10 year term or longer. In that scenario we don't really care what happens to the rate in the interim. We're protected.

There's enough risk in life. Best to eliminate some un-necessary risks. 

The letter of intent template is the easy part. The body of the letter should define the terms under which you're willing to complete the transaction. There are two forms of LOI, binding and non-binding. You need to decide which you want. Then you should define the various deliverables and conditions. It's up to you. These are just suggestions. Is the purchase subject to due diligence including: 1) environmental assessment. 2) review of financials including bank accounts 3) independent appraisal 4) title report showing clear and marketable title. 5) interview of property manager. 6) financing. It should define the dates when things happen. If the seller is slow to deliver documents, do the remaining dates adjust accordingly? You can keep the LOI simple and put the bulk of the work in definitive agreement of purchase and sale "to be negotiated in good faith by the parties within 10 days of acceptance of the LOI." It sounds like you don't have an attorney working on the file. If you're new at this and are concerned about legal costs, then put together a one page list of terms that are important to you. Then take that to the attorney to create the LOI. I've seen too many rookie investors get into trouble because they weren't willing to spend $500 on a lawyer. You can reduce the cost of legal significantly by having your lawyer review documents instead of asking them to draft from scratch. Hope that helps.

The problem is that real estate investment is somewhat complex. There are many pitfalls. In  a 3 day course you can only cover so much. You will get 40%, or maybe 60% or perhaps 80% of what you need to be successful if you're really lucky. They can't possibly cover all the situations that you may encounter in real life. I've been investing for years and am still learning new situations every day. What counts is access to experience. I rely on my mentors. I have two that are extraordinary. That has saved me repeatedly. I also read at least two new business books per month.

 I also mentor a few businesses in my spare time. The time I spend with students isn't usually on real estate specific items. We spend time on filling gaps in knowledge, overcoming emotional obstacles, people leadership, and improving business processes.  

Many canned courses assume that students are at a particular starting point in their knowledge. Truth is, there is no one-size-fits all. 

The experience base on BP is good. Getting good advice (emphasis on good) in real time is important. You will also get some bad advice. Learning how to filter out the bad advice is the key. Everyone has an opinion.  

Real Estate is a game of big numbers. All investors eventually run out of cash. In order to scale beyond your limit, (wherever it may be) you need to learn how to raise capital. I say, hang on to your cash, and use it sparingly to combine with other funding partners. You can do this within your self directed IRA or outside. It doesn't matter. Put your skin in the game and leverage it with funding partners and bank debt to build larger projects.

Most rookie investors buy only what they think they can afford. That's a limiting belief. 

Go bigger and combine your efforts with a strong partner. That's the path to wealth.

Welcome Carlos. There are so many ways for Canadians to invest. We can work locally in the GTA or many of the other markets in Canada. The US market is a huge opportunity (where I spend the majority of my time). Check out the Real estate talk show in Toronto at realestatetalkshow.ca. They have great guests. I'm also a regular guest on the show (full disclosure). Victor Menasce President of Ottawa Real Estate Investors Organization.