All Forum Posts by: Wendell De Guzman

I can help. I think though that you should post these things in the Marketplace.

We just put up our HARD MONEY LENDING business and in just 2 months, we made over $1.5 Million worth of loans. I attribute at least 50% of that amount to borrowers who are members of Biggerpockets. Thank you @Joshua Dorkin!

I've said it many times before and I will say it again - BP is an awesome community. But for you to get noticed and get the most value out of this community, you should provide value through actively participating in the forums & blogs. Look for people who have a high ratio of votes to posts (e.g., 1000 votes to 1200 posts vs. 10 votes to 1000 posts) and do what they do.

Talking about providing value, here are the TOP 10 THINGS YOU NEED to get your hard money loan application approved: (arranged in a "countdown-manner")

10. You need to get your financial and LLC documents in order (tax returns, bank statements, proof of income, incorporation documents, etc). Any lender will ask these documents so organize them now even before you need a hard money loan.

9. Learn how to make a PERSONAL FINANCIAL STATEMENT (Assets and Liability statement, Income & Expense, Cashflow) or have a CPA make one for you and show it to your lender. The more the lender can see that you have a positive net worth, preferably very liquid, your chances of getting a hard money loan is very high.

8. Put together a RESUME of your real estate experience. Even though we provide hard money loans even to newbies, I feel more comfortable lending to people with real estate experience, preferably those with rehab experience. In your resume, you can put pictures of before and after renovation, as well copies of your HUD-1's showing you've profited from a fix-n-flip before.

7. If your resume is thin - meaning you're a newbie and not very experienced, get experienced teammates and show their resumes to the lender. For a fix-n-flip, you need to get a good real estate agent to sell your flips (get the one of the top 10 selling agents) and a good experienced General Contractor. If you're experienced, showing your lender your team's resume will still help.

6. Get the most recent copy of your credit report. Sometimes bad things happen to good people resulting in them having some dings on their credit. But if you can show that you have been paying your bills on time for the past 12-24 months, chances are good the lender will overlook that ding or two on your credit that happened 5 years ago.

5. Get a good real estate agent (your buyer's agent) to do a GOOD CMA (Comparative Market Analysis). Include SOLD and ACTIVE listings COMPARABLE to the subject property in a half mile radius, sold in the past 6-12 months, in a 0.35-0.5 mile radius from the subject property.

4. Get a DETAILED SOW (Scope of Work), broken down line item by line item with separate cost for materials and labor if possible. Having a good GC will be crucial for you to do this.

3. Fill up the Loan Application COMPLETELY and HONESTLY. Don't HIDE anything from your hard money lender or from any lender for that matter because we will find out anyway.

2. Get a SIGNED Purchase Contract (signed by you, the buyer and your seller) - yes, hard money lenders need you to have the deal under contract before they can lend you money. Hard money lenders prefer that you buy the house in the name of a legal entity (an LLC or corporation);

and

1. Present to the lender a spreadsheet showing your PROFIT PROJECTIONS. If the lender sees that you know what you're doing, chances are good you will get your loan approved. You need to know your numbers even before you put the property under contract anyway. If you don't know how to run your numbers learn it first. You should have a spreadsheet that looks like below:

So there. Hope this "Top 10 Things countdown" will help you get your hard money loan application approved. 

And I hope this post will also inspire you as well to be more active on BP (which I have not done lately since BP has provided me so much business - both in real estate and now in lending) so that you too will generate business because of it.

Originally posted by @Percy N.:

Don't you also have to be mindful of Dodd Frank rules if you are selling to owner occupants?

 NO if you do it right but YES if you do it wrong. Here's the answer:

Downsides of Rent to Own but Why I Still Like It

Originally posted by @Alex Franks:

 Rent to own or owner finance...

Rent to own , basically a rental that you   are hoping the renter can qualify. keep in mind a rental attitude is still the same. So you still have the same headaches. As well if any money is collected on the lease or rent over the payment plus and up front funds. All need to be escrowed. I would like to just see 3 of the renters that actually purchased a house. not saying this does not work but years ago this was a real scam for  predatory land lords. Basically accept $5k down first time tenant was late repeat the cycle. I used to manage properties here in NC an Sc. Numerous people were burned from so called Rent to own deals. I tell tenants unless they actually have a mortgage payment Booklet just like a bank. The lease option is basically not worth the paper it is written on. Basically just a lease unless filed ( in NC and SC ) actual sale.

So  I would love to see the actual homes you have completed this on.

Now don't get me wrong I know several investors who do this In Charlotte NC but the end buyer very few actually come through.

You are also leaving out if the buyer leaves and you have to find new buyer. Vacancy along with repairs which will be needed in any rental. Even if just cosmetic.  

just my two cents

Alex

Alex, I understand your skepticism. 

First rent to own is NOT the same as owner finance. @Bill Gulley can elaborate and teach you the nuances and differences.

Second, to say that no one qualifies and completes a rent to own deal is like saying that bandit signs don't work - or craigslist don't work. The answer is it works - but it depends. Sure: if you choose tenants with a 380 credit score and they put $1K down on $30K houses - most likely these won't be completed and will become long term rentals. I only do rent to own (in my market at least) of houses in the price range of $150K to $250K. Also, you need to do it right. Here's a more detailed post on the Downsides of Rent to Own and Why I Still Like It.

Originally posted by @Matt Musser:

Wendell,

I had a rent to own contract signed on one of our properties for 3 years and after 2 years the payments stopped and had to ask them to leave. After 3 months we finally got them out. Things I learned: Have at least $5,000 as the down payment and charge a premium on the "asking" price. Make it VERY clear in the contract what happens if they don't pay. I would also only execute rent to own contracts for a year instead of 3. These are mistakes that we made. 

Matt

 Thanks for sharing Matt. I agree with you. All my contracts are one year Lease and one year Option. If the tenant/buyer needs an extension, I extend the Option period by a few months but I get them to lease the house month-to-month. Or, I convert their Option to a Right of First Refusal - I can sell the house to someone else - but I check with them first. If they can't buy, I go with my other buyer and since they now rent month to month - I can gie them a 30-day notice to vacate. I am in control.

Two days ago, I posted this on BP (raised some eyebrows as some skeptics didn't quite agree):

How to Make $50K on $150K Houses Without Stealing Them

In that post, I detailed why RENT TO OWN is, in my opinion, in my market (Chicagoland) at least, is the MOST PROFITABLE real estate strategy right now (Jan 2016). Where can you find a strategy where you can make $50K profit on $150K houses? However, as BPers and smart real estate investors know, there are always downsides to everything.

Here are the downsides to rent to own:

1. You have to wait more than 12 months to get the BIG BACK END profit and that is if the tenant/buyer successfully gets a bank loan.

This is why, every rent to own that I have - has to make me $400/month cashflow - minimum. Worst case scenario and the tenant/buyer does not qualify for a mortgage and you need to extend the lease and option period, it becomes a good rental property and the cashflow makes it worth while to hold.

2. You're still dealing with tenants and tenant issues.

Sure you are. But see this is the thing - real estate investors will have to learn how to own rental properties (because rehabbing and wholesaling only produce active income not passive income) anyway if they want PASSIVE, RECURRING INCOME (right @Brandon Turner - which by the way, I got his latest book and it's awesome). You might as well start with rent to own because it's less management intensive (since you have no maintenance & repairs calls), you get better quality tenants (since they put down $5K or more and hence, have more to lose if they decide not to pay the rent), and you accumulate that $5K reserve that you can use in case of vacancies.

3. Isn't Rent to Own affected by Dodd Frank?

If you do it the right way - which is separate the Lease & Option agreements - and no part of the rent goes towards the purchase (as that will be deemed owner financing) - then NO, Dodd Frank does not affect rent to own. Here's a good forum post about this topic:

Dodd Frank and Rent to Own

So how do you deal with all the downsides above:

1. Only get tenant/buyers who have a higher chance of getting a bank loan

On day 1, I have my mortgage broker talk with my tenant/buyers. Also, I don't get tenant/buyers with 380 credit score or those who just filed bankruptcy yesterday. I get someone with a 600 credit score or one who has filed bankruptcy 2-3 years ago (or longer). I get one who has a reasonable chance of getting a bank loan in 12-24 months and I get my mortgage broker help the tenant/buyer do so.

2. Tenant Prescreening

Rent to own does not mean you should not prescreen your tenants. You should. You should prescreen them for their ability and willingness to pay the rent. We do a criminal, credit and eviction checks. Having $5K - $10K is not a guarantee we will get you as a tenant/buyer. I even rejected one with $40K cash but the guy has 4 foreclosures in his name in the past 12 months. So, do a good job in tenant prescreening and you'll avoid 90% of problems with rental and rent to own properties.

3. Get an Attorney Who Knows Dodd Frank and Rent to Own

Get the right contracts and a knowledgeable attorney and rent to own will be an awesome exit strategy to add to your arsenal.

So...what other downsides did I miss? Any BPers succeeding with rent to own?

I have an off-market deal in Chicago.

Property is going to be worth $200,000 if you add a bedroom to this 3 bed/ 2 bath home and convert it to a more desirable 4 bed home. Also, once you convert this to 4 bedrooms, you can rent this for $1350-$1400 a month.

Total rehab to add a bedroom and update the house is about $70,000 (detailed scope of work can be obtained when you email [email protected]).

You can have this house for a mere $70,000. And you can make about $42,000 profit!
Email [email protected] so you can get a copy of our Rehab Profit analysis.

Address: 8011 S Michigan Ave., Chicago

First one with a signed purchase contract and EMD of $2,000 gets the deal.
Contact the head of our Sales department, David Perez at 708-408-9006 if you want to lock in this deal.

Here's the LINK to the pictures.

P.S.Last time we had a deal in the area, the house sold in 5 days and that was when we had 100 buyers in our database. Now that I have over 200 buyers...and on top of that, there's BP Marketplace so I expect this deal will be gone even faster.

Originally posted by @Shawn C.:

is owner financing an option?

 Shawn, it depends. What do you have in mind as far as terms are concerned? Downpayment, monthly payment, etc?

Rehabbers are fighting over deals in many markets.

Profit margins are becoming thinner and thinner.

A few years ago, you can buy a house worth $200K for $50K, put $50K of repairs in it and come out - after all expenses - making a cool $50K. Well those days are long gone.

However, with a few tweak and just a little but of patience, do you know you can make $50K on a $150K house without the need to buy that house dirt cheap? Meaning, you no longer have to "steal" that house. In fact, you can buy (and rehab) that house for 80% of its market value and make a cool $50K. That's right - you can make $50K on this house even if you are "all-in"into it for $120K.

This not theory.

We are doing this right now.

I want to share this with BP Nation as a way of giving back and I also need help.

The strategy I am talking about is RENT TO OWN.

With rent to own, you can:

1) Sell the house at a higher price (+10% premium is not uncommon). For a $150K house, in the right markets (where houses appreciate by 5-10%), you can justify a $165,000 sales price. Why? You are selling this house 1 year from now so you sell at a premium. This premium gives you $15,000 additional profit in addition to the $30,000 equity (since you bought the house for $120K and it's worth $150K).

2) Get good cashflow. With today's low interest environment, you can get investment loans at 5% interest. Even in a high property tax environment like Chicagoland, we get on average about $400 a month cashflow for a $150K house we purchase for $120K. That's roughly $5,000 a year from cashflow. With cashflow like that, it does not matter even if you have to wait an extra 6 months before the tenant/buyer gets a mortgage.

The math right here looks like this:

Sales price -  $165,000

less "All-in" $120,000

add cashflow: $5,000

equals $50,000 profit

I get my tenant/buyer to pay for all the closing costs when they qualify for a mortgage.

3) Get "no-hassle landlording". With rent to own, the tenant/buyer is responsible for maintenance and repairs. So the difference between rent and PITI is cashflow. Because of this no-hassle landlording, I don't get a property manager to manage my rent to own homes.

4) Get better quality tenants. Rent to own is more desirable than rentals since people want to finally own their homes. This attracts tenants with "ownership" mentality.

5) You get a non refundable "downpayment" upfront - ensuring you have some reserves and you get a tenant with a lot of "skin in the game". We get at least $5,000 - preferably $10,000 upfront. If the tenant/buyer does not buy the house, or decides not to pay the rent, you have enough reserves to kick the tenant out and get another tenant with another non refundable downpayment. With a normal rental property where you're making $200/month cashflow and all you have is one month security deposit (say $1,000), when the tenant decides not to pay you, all that security deposit is gone and you will be in the NEGATIVE.

Rent to own sounds good. But what about the risks?

In my next post tomorrow, I will explain the risks with rent to own, how to mitigate the risks and how to prepare for the risks if they happen.

For now, are there investors out there in BP Nation who do rent to own? How do you do it? Are you profitable or not? If it's profitable, share us some numbers. If it's not profitable, what have you learned? Share your experiences here so we can all learn from each other.

Our hard money program is open even to newbie rehabbers like YOU.

We lend in the following states:

Colorado, Georgia, Illinois, Michigan, Missouri, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia.

This is hard money - don't expect interest rate below 12%.

Also, this is not 100% financing. I want you to have some skin in the game (and money to lose in case you screw up).

Here are our terms:

12% interest

4 points

12-month term

We finance up to 90% of the purchase price and 100% of the rehab or renovation cost. The total of the two cannot exceed 75% of the After Repair Value.

Minimum loan amount: $75,000

3-month reserve requirement - meaning, you have to have in your bank account, at least 3 months worth of interest payments.

To apply, contact Jai, the head of our Lending department at [email protected]