All Forum Posts by: Ben Bakhshi

Thanks for the input Charlie! 

So if I am looking to acquire a property, the investor deposits money into closing agency escrow which goes directly to the seller, and the investor gets a mortgage, then this activity would be regulated by the SEC?

I would like to find private investors to provide hard money loans, first position deed.

If I am the borrower, NOT a broker, can I freely advertise my need? Or am I restricted by the SEC or state laws?

We are struggling to lower our financing costs. I would prefer to work with a commercial bank who can give commercial real estate rates, like between 3.5-5% APR. Instead, because of our portfolio of single family homes, its difficult to find institutional money for less than 6% at 70% LTV. If you go to 50-60% LTV you might get 5-6%. This is from my experience. I would like to find a stable source of financing that costs about 4-6% inclusive of fees. I'd like to find out if working with private investors would make sense for us.

Say I wanted to offer a mortgage on occupied rental properties. What rules govern my behavior as a borrower/business? Can I simply state: "Please lend me $70k on this home that is appraised for $100k, and I promise to pay you back 5% per year." Or are there restrictions?
Are there differences if I reach out to banks, to accredited investors, to the general public, or the way that I communicate? I've never thought twice about calling banks, but I've never marketed to the general public.

Am I totally "free" because I am direct borrower and providing a mortgage as security?

There are many other questions to deal with, but these are a few to start with.

I'd like to piggyback this question.

How would the situation be different if @Angelo Webb wanted to borrow the money for himself.

If I have a property, could I solicit investors to give me money in exchange for a mortgage?

Ok, I see that the investors may see a conflict of interest in a Sponsor being Trustee of a blind mortgage pool. Although I think that Blackstone has a similar model where they borrow from their own Mortgage Trust.

Regarding the costs, yes, I do think the expenses can pay off. But saving 2 points a year of $10,000,000 in debt is $200,000. $50m in debt and we are talking about $1m a year.

We could start with a $7m closed end fund...

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What if, for starters, we were to simply offer a collateralized pool of mortgages owned by an LLC. The funding goes to the Sponsor, and assets can be rearranged (under terms of the underwriting rules).

If the LTV decreases over time, we create another stack of bond, to another group of investors.

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Question, how would these rules be any different if the loans are coming from international investors? 

We utilize a few hard money lenders for acquisition (8-14%,1-3 pts), plus we have some private investors who finance most of our equity position (10%,0pt). We've subsequently closed portfolio loans with B2R, Firstkey, and Colony(6-7%,1pt).

So far, its been a pretty good experience, but our velocity of capital is not living up to our ambitions. Loan transaction fees are high, underwriting takes a long time, seasoning requirements are not favorable to us (though B2R does offer 3 month ownership seasoning).

My dream is to have the freedom to buy whatever property I find. 

One way that I would structure a mortgage fund, which can allow us to buy any property (that means preset underwriting guidelines (say 70% max ltv, 1.25 DSCR min), increase loan amounts when a property appreciates based on new appraisals, and pay fair market rates for the debt) is to create an LLC lending entity, which will have a 1st mortgage position open mortgage (line of credit) on all of the management LLC's assets. An audited appraised value position will be provided to investors/lenders on a monthly basis or when changed.

I would likely have 2 tranches. Some investors want to earn ~10%, and are willing to do so short term, while other investors want long term stability and would be happy with 5%.

One tactic is to have the fund lend at 10% rates on un-stabilized properties, no prepayment penalty, where all of this income goes to the 10% tranche. Once a property is stabilized, we increase the loan amount and reduce the interest rate, and the income flows into the 5% tranche.

Once our fund is structured, we can have a small investor relation department raising funds full time. If the fund gets big enough, we can potentially liquidate via MBS or other debt sale that favors the investors.

Thoughts? Suggestions? This definitely is not going to be simple to plan, though it must be simple to execute in practice, especially for the investors. I just don't see another highly scalable way to expand my real estate acquisition ability as the years go by.

We are deciding between several loan options in the ~75% LTV range.

Non-recourse options are ~1% APR higher than full recourse.

We are also leaning towards fully amortized 30 year options, as opposed to their 5 and 10 year counterparts, looking at ~6.75% APR for 30 year full amortization vs 5.75% for a 5-year interest only vs 6.25% for a 10-year io. We are leaning towards the 30 year for long term stability and locking in rates. My only concern is that if we want to refinance within 5 years we would have gained nothing by going 30-year, but we like the stability.

I want to keep my family safe in case of default, but I don't want to be any more safe than I have to be.

Ways I think we can reduce our risk:

30-year fully amortization option, our risk of default goes down significantly compared to 5 and 10 year options. We won't be forced to refinance or sell at any point unless we cannot meet our monthly debt obligation. The 5 and 10 year options on the other hand could leave us stuck at the end of term in the middle of a recession, then we would be SOL, right?

Are there any legal measures that I can take to protect personal and business assets in case of default of a recourse loan? I have heard whispers of utilizing a corporate umbrella, or a private REIT, and will begin researching the subjects further.

Any advice would be greatly appreciated!

Thanks gang!

This is a bookkeeping question.

Every month we make a mortgage payment which includes: Principal, Interest, and Tax & Insurance.

I split the payment in Quickbooks Online, so every month our mortgage goes down, plus we have an interest expense on our books.

As for the Tax and Insurance, the money goes into escrow with our bank.

Initially I had created a current asset accounts in order to represent the escrow.

But that means that our income statement will not reflect these expenses until those are paid.

I am leaning towards expensing them every month, and then readjusting them in case the number is different. This will help us see better our P&L on a monthly basis.

Thoughts?

Ended up selling it with owner financing.