All Forum Posts by: Sam Yin

@Steve Vaughan

I totally agree.

In my recent experience, I was forced to use an LLC to close a Fannie Mae loan. They want it to only contain that deal. I knew of these loans and avoided for a while but it made sense this time because the local lenders were getting sticky with their terms as the market changes. Also, I was trying to get 80% LTV on this deal (because it supports it) and the local guys have been pushing down their LTVs for this market.

I think that the biggest anxiety most people have is the whole liability, asset protection, and anonymity thing. It's likely brought on by the marketing ploys of the attorneys in the business, who capitalize on those outlying catastrophic instances. I get it, it's their business and it would benefit them to get more people to believe it. At the same time, I'm certain it does happen, and I'm not denying it.

There have been tons of posts on this subject on BP, and I'm sure many other places. But I remember a poster once wrote (I think it was Nate) that if you run a good business, provide quality service and do not cut corners, the likelyhood that a lawsuit exceeds your insurance is slim. And then if you have an umbrella, it's even slimmer... may be not in those exact words...

It's a personal choice and risk tolerance. I do not dispute the merits of LLCs, but I question the practicality and efficiencies of it, especially when starting out. HOWEVER, if you have accumulated over $50M in assets or have a sizable equity stance... say over $5M-$10M, I would begin to consider LLCs, Trusts, and the like. Similarly, if you use the LLC for creative financing or strategic trading of assets, then it's worth it.

@Dan N.

Some time you do not have a choice. Certain loans require an LLC for that asset. AND you cannot have another asset owned by that LLC. Then if you get another asset using that loan product, you need another LLC.

Prime example, agency loans require the asset in its own LLC. At least that's my experience. So it would behoove you to have an LLC or two lying around in your pocket in case an opportunity pops up.

Or, just avoid that type of loan product and you are free of the need for LLC. But those products can help you grow faster. They are a but more tedious, but worth it.

@Freeman Schultz

Im not sure of others experience with this, but all my LOIs are free. The Lender or the Broker can issue one on your behalf. Or you can generate one yourself.

You just need to make sure you have the funds lined up to close the deal.

There are a few common methods. This ones you have referred to are possible, but likely not at the numbers you are talking about. These days, most lenders are willing to allow about 3%-5% seller credit within escrow. Anymore than that, you would just need to adjust the price. That is because you are essentially financing the credit back. When you started getting into 10% of the price... that's kinda fraud... that's why you generally cannot do it anymore.

As for repair hold backs, it's also possible, and very common. However, the lender often releases the money in small increments as you complete the rehab. Additionally, the loan may also cost a little more. On top of that, if this is an investment loan, there may be a few other criterias you need to match.

All in all, if the property you are pursuing has the potential for higher values with some work, I would definitely talk to the loan broker and find out what options are out there.

@Chris Seveney

Thanks for posting this topic. It's a really good reminder to not over leverage.

I had/have a deal right now that just feels weird, with the seller wanting to carry the note and tie it to CPI with 6 months reassessments. The price is OK. The rates are OK. But that last part is what got worried. To top it off, he gave me a few weeks to think about it.

I have moved on to pursue other deals. However, it there, lingering and begging me to counter back with different terms.

I do believe in these creative type deals. I feel that if the terms are beneficial, an investor can acquire an asset with minimal initial out of pocket expense, or may be get multiple assets at a time due to financing barriers. That is IF they understand the risks and can forecast enough upside quick enough to redraw the terms/refi into a stable loan.

Thanks again for bringing this up. And thanks for the responses. They really do educate!

Quote from @Zach Jones:

@Sam Yin Sam... That is the wildest response I've ever had on any post from this site.  First off, sorry for taking 2 damn months off BP.. Life has been distracting lately and I've really needed to focus myself back on the RE and the goal of Financial Independece thru RE (FIRE?). THANKYOU for being so open and willing to share your experience.  That story is phenomenal.. from pissing the wife off, bad choices, neglecting kids for a better future.. all of it.  Huge goals of mine as I have 2 young children and work in the auto industry where long hours are the norm.  The goal of going to commercial is a big 1 , especially with testimony like yours explaining the gains of CF when making the jump.  I would absolutely give up some equity in my triplex to move into a 6/8 unit and that seems much more attainable then dong something like going straight into a 30 unit or something of similar size.  As I stated before, it would def be hard to give up the rate but when trading for CF, if the deal makes sense.  who cares.  Can I ask where the deals came from and if they're local to you?  Living in central Florida, the cost of everything are pretty high and finding larger MF (5+) can be pretty tough.. I've seen people mention investing out of state ion better markets but the thought of that is  a little stressful.  Not knowing the area, markets, and not being able to go there if need be.  

I wanna say thank you again for taking the time because stories like that remind me that its possible.  It may take some time, stress, dedication, but the goal of true freedom are possible and I appreciate the motivation. 

All my purchases have been local. I did look into out of state because the cash flow looked really enticing.  But after a second look, it did not fit my goals. I think I would be dead in the water and slowing moving forward had I gone out of state. The cash would be great for the initial investment,  but the growth would have been stale.

I remember a podcast/YouTube video that talked about keeping it within 30 mins of where you live if you are going to self manage. I took it to 60 mins because there was just more opportunities in 60 miles of Los Angeles.  

the point is, I wanted to be able to create value quickly and felt I needed to do it on my own to save money in the beginning. I worked full time. Had 3 kids. Had a few side hustles. Ran out to the properties and hustled anytime I have a minute to breathe. It was my way of ensuring forced appreciation.

I don't do it anymore.  I hire out about 99.99% now. But that's because of the initial growth that came from doing it my self. 

to your point about local markets, it's the one you would know best. Its the one you would understand most. Thus, it's the one that would make the most sense if you want to have the most control. And based on you past posts, I think you want to keep control over your investments. 

I do not think I would have been able to grow as quickly if I went out of state. For example, to get stable, I probably could have grown to about 100 to 150 units. May be cash flow about 200K to 300K. But equity would have been minimal. I would depend on a team OOS to manage and slowly improve. That is because it is highly unlikely you will find a PM company that would focus on cleaning up class C properties for the sole purpose of forcing appreciation for 1031, ESPECIALLY when you are talking about small apartments. Confronting people is not normal for most people. This is a people business.  

here are a few examples: staking out tenants and monitoring activities through the night. Towing out cars at 5am, at 10pm, at 2am. Tossing out undesirable tenants, tearing down encampments on a Sunday morning and middle of the night. Dealing with felons and parolees. Etc.

but for me, that's what I took to grow that fast. It is possible to do the same with a PM, but probably years versus weeks and a few months. 

that has translated to me now looking for class B buildings and creating my own management team that I trained for my goals.

@John McKee

I see these numbers from time to time. They are very enticing for their cash flow and ability to qual for higher leverage.

However, I have been leaning towards more of the lower CAP rates and try to increase the NOI and trade them. My buyers have been folks who want stabilized assets that produce good cash flow.

There will come a time that I will look for more turn key assets just like @Russell Brazil said. I'm getting close. But for now, I still have the fire in me to keep hustling for value add.

It really all depends on the investor, they investment goals, and of course the money they want to spend.

@Chris Seveney

Thanks for that. All good points. I think I was a bit excited to have my first seller financing offer on a property a few blocks from my others, that just happened to come at a time when I need to spend the money. That seller requirement of tying the rate to CPI fluctuations is my sticking point.

Thanks for the quick response.

This is all very fresh and I just submitted a few more offers, an 8 and a 14. If those are accepted offers, I was thinking of countering the above seller finance deal with a rate cap of 8% and lower the DP to under 200K. That could allow me to nab the property by chipping just a little off my reserves, which should recover. 

Here is a tad more detail on the property and my mental math. Current rents are roughly $750/month. Market rents are $1800/month and Gov subsidized rents are $2100/month. At $800K for 5 units, that comes to $160K/door. The area is currently trading at $200K/door for this unit mix at $1400/month. Should rent be raised to to $1800, that equals $108K gross. Operating expenses are $30K. The area averages a 5 CAP.

That CPI tied interest is what has me baffled as how that can be made to work. At the moment,  its likely a dud. The seller owns it outright with a partner and this was his CPAs recommendation. He is an investor as well. He has about a dozen properties, totalling about 500 units. So he knows the game way better than I do.

Good afternoon BP Community. I have run into a unique (to me) situation and I would like to know if others have encountered this, and/or successfully/unsuccessfully completed this type of transaction.

Background: my clock just started to tic on my 1031x. Last week, I made an offer on a property (5plex, all 2/1), presenting 2 options to the seller, who was looking to get $775K for his property. Rents are 50%+ below market. One is via commercial loan through local lenders at $675K, which requires a minimum of $475K down payment. The other is seller carry at $750K, using $400K down payment, and the rest is seller financed at 5% I/O for 5 or more years.

These terms would allow me to COE with just above break even, but the potential cash flow is $50K. I know the market and have 50 units in the area. I'm confident the rents can be double or more.

Today, the seller responded with seller carry at $800K, same down payment.

Among other unfavorable, but tolerable conditions, he wants the loan at 6.25% I/O for 10years. This would result at roughly net zero at COE.

Here is my dilemma, he wants the loan to adjust every 6 months, with the interest tied to any fluctuation of CPI.

I had not heard of this before, but I understand his stance.

My question to those who are in the seller financing world, have you encountered this before? How has it played out?

Note: in the last 24 hours, I have 2 other deals that came in, much more favorable, that i will pursue. However, if the seller financing can still be obtained, I would like to try and grab them all, even if it means I float the costs for a short period using cash flow from nearby properties ($20K/yr max if needed). The upside is $500K in value for a future 1031x.

Please share your thought. Be honest and as critical as needed. I want to hear all points I may have not considered. I can add additional details for those that require it to analyze. These are all off market deals.

@Justin Hughes

Price drops should not be a focus of concern, if you purchase properly. I'm not talking about buying below market, although that is nice.

Buying properly means you closed the deal with cashflow. It also means you underwrote with maintenance, reserves, and vacancies. Thus, if the market take a big downturn, the property should be able to sustain itself. You just ride it out if you cannot sell it or refi it.

If you have negative equity, but still cashflow based on your current debt load, I do not see any problems. If your note is about to adjust up, and you have negative equity stopping your refi, your cashflow should be able to carry you if you took on the standard debt with average adjusting rates tied to prime or treasuries.

There is always the worse case scenario that includes having to just walk away and start over. But dont be afraid of that. It's a business. That's what happens in business.

This is how I mentally and actually protect against downside risk. AND that is what I feel it take to overcome hesitation and overanalyzing deals and not pulling the trigger.