All Forum Posts by: Ram Gonzales

Hi all. I recently started investing in land nationwide. I get 5-10 leads per day and handle the acquisition side. I'm looking for a JV partner for the dispo side. The right partner has a track record of success in finding buyers, posting effective ads, and closing buyers, particularly for land. Deals range from half acre lots to 50 acres, from infill lots to rural. Looking to develop long-term partnership.

I've starting investing in land and have a steady flow of leads coming in from PPC marketing. I don't necessarily wholesale. I generally buy with cash and then list on MLS or off-market channels. I just started but am already getting more leads and contracts than I can manage on my own. I'm thinking about bringing on some other "agents" to whom I can send leads where they work the lead from purchase to sale and they get a split of the profit on each deal. How are these arrangements typically structured within typical wholesale companies? Is there another way I should be approaching this?

Hi Kfir. Here's an opportunity that is currently listed in a good neighborhood (Medical Center). Sent to me by a realtor friend. 

https://www.zillow.com/homedetails/4911-Belle-Ellen-San-Anto...

Best school districts in SA (we have 16 school districts (stupidly)) are Alamo Heights, Northeast ISD, and Northside ISD. That said, there are many fine schools in the other districts including charter schools and academies, depending on neighborhood. 

@Shafi Noss Yes, I'd love to hear more. I'll DM you. Thanks!

Thanks @Don Konipol. Yes, the target raise would be $3-5 million for the first round. As to structure and conflict of interest, I was initially planning to structure it as an equity fund but was told it might be more attractive to investors as a first lien debt fund and to use it as a bank for the LLCs deals. The SEC attorney I've been working with advised that I would just need to disclose in the PPM that 100% of the capital would be used by my LLC.

Thank you @Chris Seveney. Great points. I've done the one on one thing for a while now but for a lot of reasons (timing, paperwork, reliability, etc.), it's not ideal. It might be the way I have to keep going but it's why I'm exploring this fund option as an alternative.

1. Servicing Costs - Yes, servicing is included in the proforma.
2. Holding Costs - My experience with owner financing is that I can buy and sell a property in a month or less since the rehab is minimal and I'm providing the financing. Keep in mind that I am selling them as affordable fixer uppers and usually only address any health, safety, and functionality issues. In some cases, I've had a buyer lined up by the time I close. I usually end up with a list of buyers with down payments but I don't have any more inventory for lack of inventory (capital). All that being said, the proforma includes a 90 day turnaround between purchase and cashflow.
3. Closing Costs - Yes, closing costs are in the proforma. In Texas we do not have real estate sales taxes but property taxes are high and also included in the proforma based on the 90 day holding period.
4. Company Overhead - Agreed.
5. Default Rate - Yes, I realize that there will be a certain amount of default. I have that worked into the proforma as a vacancy line item. I believe I also used 10%. Defaults result in foreclosure. I then recoup any losses in the resale and down payment forfeiture. Only other wild card is if they destroy the house on the way out. This is why I prefer the cash-for-keys approach. I've only had to do it once but it worked out well enough.
6. Raising Capital - Investor capital would only be tied up for 5-7 years. Whether the balloon or the adjusted rate approach, the borrower is incentivized to refinance. We would also be working with them to prepare them for refinance from Day 1. Worst case scenario, we sell the seasoned, performing note at a discount. This would affect the LLC payout but not the Fund investor, assuming the note is sold for more than the underlying loan of course.

I appreciate your thoughtful analysis. Gives me more to consider as I develop the PPM.   

@John Clark I ran a nonprofit for 5 years and considered that option for this strategy, but, for a lot of reasons, it would be more limiting in the long-run.

@Chris Seveney We don't plan to make money by managing the fund. We plan to make money on the properties. Essentially the Fund would be our bank that lends to my LLC who purchases the properties. The Fund gets a first lien on the property. LLC sells the property to Buyer by wrapping Fund loan with a loan (BBB) to Buyer.

Purchase Price: $85,000
Rehab: $5,000
Loan Amount from Fund (AAA): $90,000
Interest: 9%
P&I: $724.16
ARV: $145K
LTV: 62%

Sales Price to New Buyer: $145K
Interest: 9%
Down Payment: $15K
Amount Financed: $130K
P&I: $1,046.01

Cashflow
Down Payment: $15,000
Monthly Spread: $321.85
Backend at Refi: $38,352

There will be costs to administer the Fund but it's manageable given the upside, particularly at scale (I've done a full proforma with those costs in mind). Let me know if you think I'm missing something.

@Joe S. Not that I've heard of. I suspect that DSCR lenders are more likely to exercise the DOS option when transferred.

@Scott Mac Of the 12-15 I've done, I've only had one default as I described earlier. The others are either still paying as agreed, the notes were sold, and two have refinanced out. Because of the funding structure I use now I don't include balloons or rate adjustments. That would be new under the fund structure. The goal is not to get the house back. The goal is for them to prove a track record of payments and leverage that to refinance with a traditional lender into a lower rate.