All Forum Posts by: P.J. Bremner

@Rich Baer

You bring up an excellent point and I had run that scenario through my head a couple different ways.  What do you think about using it for the first couple of deals, then keep them in my back pocket in case I come across multiple deals but only have cash to fund 1?  I could use them to at least hang onto more profit instead of straight wholesale.  I'm not sure if it complicates things too much though.

When I initially came across the company, it seemed like they were focusing more on the newbies who don't have any RE experience, giving them some "free marketing strategies" and then providing all the funding for them.  It's a pretty smart strategy if you ask me.  Anyone that brings a deal to them has done most of the hard work and they only approve the deals that have enough meat on the bone to withstand the variance involved with flips.  The contractor knows what to do when they get in there, so their involvement is pretty minimal and they use don't use any of their own money, they use private investors so they risk none themselves.  I guess I was just more curious to see if their structure makes sense from the flip-side of the business.

As for taxes, I pay a very good CPA to handle all of my taxes and she knows her $hit : )  Gotta let them earn their ask, right? :)

I recently came across an opportunity to flip homes with a partner and I wanted to run this through the BP experts to get some feedback.  Here is how it works:

1. Find a deal (through whatever preferred method) that fits within their criteria
2. Contract the property using and or assigns and sell the contract to the partner
3. Participate in the management of the flip project (They have a GC that has guidelines to follow, has done tens of flips already with these guys and they use the same process each time, so personal involvement in the flip would be minimal)
4. Split the profits after it sells

Some quick numbers to keep in mind for their deals:

• They need to see a 15% - 20% profit margin in the deal to take it on
• All costs of the deal are subtracted from the proceeds, THEN the 50-50 split happens.  They borrow private equity to fund the deals @ 15% no points, no doc fees, straight 15%
• I am allowed to wholesale the deal for more, as long as the profits fit within the aforementioned margin
• I am allowed to keep the listing for myself (I have my license) and sell it at 2.5% commission

My dilema is this: I have enough cash for 1 flip at a time currently.  If I do the flip on my own, I risk my own cash, have no extra guidance and can only take on one project at a time.  On the flip side (no pun intended), if I give up 50% + holding costs, I have 0 risk of loss, still get to keep a wholesale fee (if I get a good enough deal) and have lots of experience behind me from the partnership.  

Anyone see any red flags, offer some tips or guidance here?  Would love to see what you think.  Thank you in advance!

@Jared Senne

My understanding about owner occupied loans is that you must "Intend to occupy the property for X amount of time".  I've heard anywhere from 9 - 12 months.  Now, if you have every intention to move into said property, obtain the loan, and something changes on your end for personal reasons and can no longer live in the property, AND YOU CAN SUBSTANTIATE IT, then you are not obligated to stay in the property.  As others have stated in this thread, if you take the loan with no intention to move into the property and get the loan as an owner occupied loan, you can be charged with mortgage fraud.

That being said, I've had to walk this tightrope myself on one occasion.  To me, I knew the risks going in and planned accordingly.  If you have a solid reasoning behind why you planned to owner-occupy the property and had to move out before the 9 - 12 month period is up, then I don't know how you would ever get prosecuted.  Let's look at a recent example of how difficult it is to "prove intent": Hillary Clinton was not indicted for any wrongdoing because they couldn't prove any intent.  I'm not trying to stir up political crap here, but seriously; it's VERY difficult to prove intent in a legal setting.

On a final note, the bank cares about you keeping the loan current.  If you make your mortgage payments, I find it hard to believe they would even bother to look into anything here.  All of my properties were purchased with owner occupied financing, I lived in them for a period less than the 9-12 months, I made all payments on-time and was never investigated.  I'm not trying to tell you one way or the other.  It's best you make up your own mind on this matter, but at least you will have another scenario to base your decision off of.  Best of luck!

I was reading recently that foreclosure auctions weren't that big anymore because banks are more willing to work with borrowers instead of foreclosing.  Anyone have experience with this?  Are there still decent deals to be had at the courthouse auctions?

@Natalie Kolodij

I did ask him as well as asking for a price concession.  He has yet to respond in several days so I have since then unsubscribed from his "wholesale deal offerings" if you can call them that lol  Thank you for your input!

Also, as for 1.21 miles hitting the county line, I don't think this is a valid reason to expand the comps range.  Personally, I don't even look at anything beyond 1/2 mile unless I don't have enough comps.  I value comps on the same block over the ones 3 blocks over, etc.  In this case, I was able to find a comp ON THE SAME STREET that was bought, rehabbed and sold within the same 6-month comp period.  THAT is a perfect comp (it was a tiny bit smaller).  I don't see how anyone can refute a comp like that.  This kid was reaching for ridiculous numbers in order to make his bad purchase price work.  The house sat on the market for 124 days at $190k, then he gets ahold of it and tried to pitch it as a wholesale for $198k.  Sleeze bag.  I made sure not to throw him under the bus on here and keep his name and company private.  I just hope other BPers are very cautious before they do any deal, BP or not.

@Mindy Jensen

I see what you mean.  To replace a vetting process by simply looking at someone and going with the gut would be a mistake, I agree 100% and I just wanted to make sure people reading this understood the very distinct difference between my business and a traditional rental property management approach.  There's no chance I would follow the same process renting a home or apartment out to a family.  I appreciate your input :)

Oh, by the way, this is the URL for the loan limit look up through Fannie Mae.

https://onlinegeocoder.fanniemae.com/loanlimitgeocoder/pages/Online.aspx

@Jamie Garcia

The main issue that I see here is the price of loan you will be looking for. I used to originate mortgages and just remember how difficult and expensive it can be getting a loan over the Fannie/Freddy limit can be. Typically the limit is $417k but in certain areas that are very expensive, they will allow a higher limit. I just looked up a random address in Northridge and looks like the limit there is $625,500 for a 1 unit dwelling. What this means is if the property is worth $1 billion dollars, you can only take a loan of $625,500 and stay within Fannie Mae guidelines. If you go for a jumbo loan, you can get more out (possibly, jumbo cash-out has their own guidelines but the LTV are generally not very generous and the rates are much higher). Another alternative would be a HELOC to tap the equity above and beyond the $625,500, but the guidelines will be dependent upon the HELOC company.

I am in a similar boat as you, no family yet but planning that route.  My personal strategy is to keep my costs as low as I can until I need to move my kids into a good neighborhood with great schools.  They don't go to school until 5 - 6 years old, and I have none on the way as of yet so I have another 6 - 7 years before I need to drop that kind of cash on a personal home.  I own 4 homes, but rent my current residence.  Had I bought my "family home", I would have tied up hundreds of thousands of dollars in equity that I could have used elsewhere.  I would not have been able to buy these rentals or start my eCommerce empire.  A personal home is a poor investment (strictly speaking from a business perspective) as you can achieve the same results (a roof over your head) for MUCH less cash and monthly cash flow.

Just my personal opinion, but fix the place up and sell it (maybe wait the 2 full years so you don't have to pay taxes on the gains) and reinvest it elsewhere.  The money you make from those investments can fund your future home purchase.  If you aren't confident in your ability to invest the money and earn a good return, then keep the house.  My gut says you know what you're doing though.  Not many 28-year-olds can plop down $150k to buy a house haha i'm you got this :)

@Mindy Jensen

I see a contradiction to your comment about trusting my gut one way, but not the other.  When I accept a tenant, I am entering into a business agreement with them.  Aren't I vetting them much the same as I would vet any business partner?  They are my tenants, but at the end of the day they are paying ALL of my business expenses and profits.  That sounds like a partnership to me.

A little sidetrack from the topic of this post, but I want to make sure my position isn't misunderstood.  I vet all tenants, even if it may not be the traditional vetting process.  My business model allows me to approach tenant vetting very differently than a traditional rental.  Who are generally the problem tenants?  Professional squatters, people who know landlord laws like the back of their hand or working mothers and fathers who have to decide between paying for food for the kids or paying rent, etc.  My student tenants have not been "jaded" by life yet and learn how to cheat a landlord out of rent.  They study their subjects, not the landlord/tenant laws.  They have to feed themselves only and generally get their money from student loans (we both know how reliable the government is when it comes to throwing out trillions in student loans) parents or part-time work.  Plus, all of my tenants rent month to month so that if there is any issues, I simply do not renew their lease the following month and they are out.

Would you believe that i've been running my business for over 4 years without running a single background check, credit check, income verification or landlord reference?  You know how many formal evictions I have had to file?  0.  When I show the house, when I'm texting the tenants to setup the showings, when I am making my decision behind which person to choose to rent to, I am doing my vetting process.  I can read people reasonably well and I can spot a bullsh!t story from a mile away.  So yes, my "gut vetting" has served my business well.  Please do not confuse my business practices with traditional business practices.  We both know a round peg doesn't fit in a square hole : )

Btw, I hope this conversation isn't construed as being contentious!  I just wanted to get my side of the story out there and offer an alternative to discuss.  It's the only way we can learn from one another! 

Hi BP,

I was wondering if anyone has had recent experience with bidding on auctioned homes in the Inland Empire?  Is this still a viable strategy in today's market?  What does your process look like for preparing for and bidding on these properties?

I am thinking about going to a couple auctions to supplement my direct mail, maybe pick up an extra deal or two per year but would like to get someone else's take on the subject.  Thanks!