All Forum Posts by: Mike Klarman

If your credit is 700+ and the project cost is sub 70%, you can probably find 85%.

But before I did anything, I'd have whoever is going to do the work do a thorough walkthrough with you and get an itemized budget together.

Then apply this formula:

P = Purchase Price

R = Rehab cost

ARV = After repair value

P + R/ARV < ?

I put a question mark because people put an array of numbers there. Some 75%, some 70%, if you can get under 70% that's best. If you get close to 60% then it's a great deal. Under 60% it's a home run and under 50% is a pure steal. At 75% it can be hit or miss, once you go over that you are on a slippery slope and if your construction runs longer and costs more (which happens A LOT), and then you miss your appraised ARV by 10% - 15% (Which happens A LOT), then you will lose money.

With no liens this is easily done through a quitclaim deed. With a lien, it gets very sloppy and sometimes is not doable. I have seen it done by putting an entire LLC up for sale, with the property it holds its only asset.

If you are a beginner with questions...

If you are a novice that wants to run a deal scenario past someone...

If you are an investor looking for a reliable, accessible money source....

If you are a broker holding a difficult deal you can't get done....

I can get any kind of deal done from your basic fix n flip to your luxury ground up and everything in between. Whether it is commercial, mixed use, Hotel/Motel builds, rural deals, or anything under the sun. 

Whether you have financing needs, want some pricing, or have any questions feel free to call, text, or email:

Michael Klarman

Champion Brokers

267 251 7649

[email protected]

I think the consensus on this was to stay away.  I can tell you what I heard about them:

For referrals they use friends and family

They take zero responsibility for anyone they set you up with

They are expensive

No one I talked to made any money with them

Very, very hard to get a hold of anyone by phone

If they really wanted to help investors, why isn't someone from their organization posting here about all they learned from coordinating/vetting/supplying deals for investors?  You think they didn't hit snags with contractors?  Of course they did, unless you are a contractor or a close friend/relative of a 10/10 GC, YOU WILL run into GC issues at one time or another.

I was talking to a few wholesalers/investors I know in different markets about the BRRRR strategy and we all agreed, that if you are fishing in the MLS/Costly Wholesale pond, and then trying to figure out the GC piece as well, you will fail miserably. Too much has to go right. For every winner in. the BRRRR right now, I think there's 5 losers.

I shouldn't give this away, but after coordinating 40+ deals of my own, and also I have a lifelong friend who works for a brand name national Hard Money Lender and he is their rep they send to all the lending/investing conferences held by the gurus selling educational platforms on investing.

There's really only one way to do this successfully, IMO.

1) You need to buy for cash at the steepest discount you can find.  Some markets can offer a 30% - 40% discount.  You either need the knowhow yourself on how to track that down, or you have to get in bed with the person holding the knowledge.  It's Auction/Foreclosure/Short-Sale/Direct From Seller in distressed financial situation.  Those are your discount buys.  So, you need to have capital or raise it and it can't be through syndication unless you know all the rules and guidelines associated with that and there are a plenty.  But the cash and the knowledge puts you in an undervalued asset.

2) The easiest exit is to sell it at a mark-up to a waiting investor. Again, if this is not you. You are need to get in bed with a wholesaler who has 100+ investor pool at their disposal. Optimally, the individual finding the properties cam also liquidate them. This can also be done via MLS as well through an agent. The markups on the sales are 30% - 70%. I saw a 35k auction property get sold for 120k last year in the market I am in.

3) If the asset is not in terrible shape, doesn't need a full rehab, you do a wholetail type rehab to it.  Maybe new rugs, some fresh paint.  Clean out any trash.  Then you put it up on the market to sell at a greater markup then the wholesale exit.

4) If the market is right, neighborhood right, economy is right, the project cost makes sense, and the comps show that if you miss your exit sale by 15% that you still do well.  Then you wanna do a flip.  It makes sense in this scenario.  But only if you are sure about the GC or not worth the risk.  

5) If the rent you can get makes sense comparative to what your loan amount will be, then it will make sense as a hold. This also depends on project cost. Still need a GC here. But at the refi, only take back what you are in for. Leave all the other equity in the house and keep your debt low and cashflow high. A SFH can cashflow 600+ now instead of 200.

If you are chasing those 70% - 75% deals, it's a slippery slope and you do not have the room for error that you think you do because there's way more unforeseen costs than you think.

There's 50k min lenders out there, but yes these smaller properties are better as cash backed assets.  For example, someone in my Columbus OH network sent me a duplex that was being sold for 25k.  C/C- section of the city, both units need paint, rugs/floors, a new appliance or two.  Maybe 25k - 30k total.  The rents post refresh are 850/side.  So anyone with 50k - 60k can buy that for cash, refresh it up, and rent both sides out probably section 8 for 1700 - 1800 per month for the building.  No mortgage.  In 2.5 years you made your 50k back and the building is probably worth 50k or more now.

They are not using big box national lenders.  Those lenders have no interest in doing small loans.  They have 3 - 5 ppl working on the loan between loan officer, loan processor, underwriter, accounting....they all have to be paid and the lender will make a whopping $500 in origination from a 50k loan.  Or they can pay the same employees the same amount to work on a 500k loan where they make 5k.  Which is the better business decision?  

The people getting funded the way you describe are either using local hard money in the market. Those guys will go lower in loan amount, it will be expensive but they will back you 100% possibly on a 70k purchase. But they won't do a 30 year product so don't trap yourself. Don't get into some 12 month 100% financing for 75k and then have to find a way to give this lender a balloon payment of 75k in 12 months. You need an exit plan, that's why this little stuff is best picked up with cash that is yours or that you borrow personally - NOT A HML that is in lien position. You'd rather borrow 100k under your personal name and that do it with no mortgage.

Good credit, a GC license, the cash to close, and a deal that makes sense.  if you check all those boxes, the financing is simple.

I was in this exact situation like two years ago. Contracts signed. Funding applied for and obtained, loan was clear to close and title was clear to close. It was the day of the closing and the seller decided he wanted to keep the house. The house was a shell that the owner bought for very cheap, like 100k direct from seller. He was selling it, untouched to my client for like 180k, my client was putting 100k in and the appraised ARV came in 390k.

The day of, the seller did not show and did not answer his phone and then finally told his agent that he was not selling and nit signing.  My client is a lawyer unbeknownst to the seller and he did file under some law where an executed contract is defaulted on.  He won and won a judgement of like 50k I think, but he settled with the guy for less I believe.  But yes, there are steps to take if anyone locked into an executed contract and all of a sudden one party now fails to live up to their obligations.

Your lender should not be sending any money in that early in the process. There's a whole wire process that happens after the title docs are straight. The lender needs to order the wire internally through accounting. Accounting approves the wire and cues it up. Once the fully notarized and executed loan docs come back and the lender reviews everything and this includes the HUD which has to be signed by both parties buyer/seller. Not sure why the lender is sending the money this early. It's not usual protocol.

I actually looked into this very recently.  I discovered that if you plan to take on passive investors and plan on putting their money into RE, that action is highly regulated.  You need a promissory note, you need a subscription agreement, if the investor is unaccredited (which means their net worth is under 1 million) then that will be another form that will be needed and they'll need to be cleared to invest this way, and an attorney I spoke to also added that if investing in RE this way, you should notify the SEC.

If the investor is not helping to facilitate their return, then they are considered passive. If they are helping in the process then they can be a JV partner.

But to co-mingle monies from passive investors into a single RE deal, that is heavily regulated.  The investors would need to be sent an entire packet with all forms and contracts needed and then you would need a new bank account for every project.  Each project is called a series.  A series can have one investor or 10 or more.  But each series contains one house and if anything goes sideways in the one series, the other series' going on are not affected or are not libel because you need to protect yourself and also your other investors.

A Much better way to do this is with debt and give the investor first lien position on the house, at the time of exit the investor submits a payoff to title that encompasses all that they are owed.  All payments and origination can be rolled in the back.

It's best to work backwards when trying to figure out what your threshold for purchase should be.

For example:

Three newly rehabbed 3/2 houses around 1300 sqft in your market just sold in last 6 months.  The sale prices were 270k, 290k, 285k.  You figure 280k is around the number you should use.

So 280k is your exit.  Your max loan amount will be anywhere from 65% - 75% of that number depending on your experience, credit, and the market.  Let's use 70% to be conservative.  70% of 280k is 196k.  That's what a lender will be willing to give you in a loan toward the purchase/rehab to complete the project.

Now, this is where it can be a little tricky.  You need to have a good grasp on estimating the rehab. Or you need someone to walk it for you and give you a good estimation.  Something accurate.  If you come in too low, its no good.  You'll be getting notified mid project that there is not enough money to finish, and can't be too high because it will kill the loan numbers.  Let's say in this case, the rehab is 75k.  196k - 75k = 121k.  121k is around what you should pay for the project.

Now, that's a good back of the envelope way to see around where you need to be.  To get the most accurate numbers you need to add in all the closing costs and hidden costs like transfer tax and such.

So, this is a tricky spot.  I have been here before or I should say put here before by contractors.  If you are refinancing the house and keeping it as a rental, then you may be able to get away with it because ownership is not changing hands.  If you were to sell it, the buyer would have a home inspection done and then they may uncover things and then it is possible that the city/town makes you rip things out and do it right with a permit and licensed contractor.