The trust deeds we do are for high interest refi's, rehab, and land development. Most of the residential loans I do are for mostly people that have in some way fallen on hard times (spouse,mother, etc dying or something like that) and need to refi to get some cash and to pay off creditors while they get back on their feet. Most of the commercial loans we do are to RE developers who have tons of money but perhaps aren't liquid or simply don't want to use their own money for one reason or the other.

I'm not sure really how this differs from what you consider HML but it's by far the best passive investment I've come across. I'm just curious what else is out there. I also recently attended a tax lien certificate auction last week where the yield was 15% on holding the lien. Unfortunately there was a pro bidder there that outbid me on all but a few properties, but I think there's some potential there.

As far as the MH idea, yeah I'm aware that it might be more hands on, but I think the profit margins are probably going to be the highest here on the flip vs a sf house. More importantly though I would be in it to hold the note at a ridiculous interest rate.

Say one were improving a property, any advice on dealing with contracted workers? Finding a reputable one, keeping them to their estimate, everything. Seems like everyone I know has had had poor experiences with a high % of the contractors they try, whether its paint or construction, or overbilling after lowballing the estimate to get the job or whatever. Thanks! Great idea for a thread btw, appreciate it.

Well, other than trying to find reliable a reliable general partner to do flips with I'm out of ideas. I forgot about tax lien certificates b/c we don't have them in my state.

One idea I came accross recently on creonline.com is buying mechanic's liens: http://www.creonline.com/articles/art-045.html

It looked interesting and I bought the guy's book to see what he has to say. Got it yesterday. I also talked to my lawyer and he said "gotta tell you buddy...thats the best idea i've heard for a while." Well, he's a lawyer so what does he know? He did sit on the legislature when the machanic's liens laws were revised a few years ago, so I'm taking his word for it. We'll see where it goes.

Oh yeah, it just occured to me that there is a group - maybe Mobile Home University or the Mobile HOme Park STore that works with money investors to hook them up with reliable hands on MH park operators to purchase parks. I don't know what the yields are on that type of thing exactly, but it might be worth looking into in your situation.

Well, where I live there are a handful of reliable guys that just about every investor uses. They are really busy and cost a bit more. They rarely have the lowest bid, but you know that the bid will be very close.

Here is what I recommend. First, get in touch with other investors to find out who they use. I'd bet dollars to doughnuts that you'll start to hear the same names mentioned over and over again. Second, if you don't have access to other investors, you want to tend to do business with companies that have been in business as the SAME BUSINESS ENTITY for a long time - over ten years preferably. Lots of ****ty contractors do ****ty work, get sued, and just abandon the LLC and form a new one.

Third, to keep your guys on schedule I've found its best to bribe them. A lot of people have attitude that they'll penalize a contractor for going over schedule. That doesn't work b/c the contractors just come up w/ a list of reasons why the delays aren't their fault, and they'll be right. What I do is offer the guy an extra $500 or $1000 (or more depending on the size of the project) for getting the thing done on time and on budget.

Fourth, be sure that your guys know that lowball quotes up front and high bills later will absolutely not be tolerated. Make sure that they know to inflate the quote a bit to control for potential problems - particularly on old properties where construction methods and materials are very different than today's.

Fifth, be sure to get multiple quotes on each job. And compare the quotes to one another. I woulnd't consider a quote that is real vague. I want to see a detailed description of the scope of the work, materials, etc. Then compare the quotes to see if the lowest seems to be leaving anything off.

Thats all I can think of right now.

I deal with Hard money lenders daily. I am thinking about eventually getting into HM lending as a compliment to my wholesale business. I see how much these guys make on every deal and their risk and it makes me sick.

Typical deal these guys loan about 60% after repair value which is right about the price I sell my properties at. So essentially they are loaning about 95% of the purchase price. They usually want to see the investor put something into the deal so they cant walk away. (5-7k downpayment)

They charge 3 points upfront and 14% interest. No prepayment penalties so sometimes they roll over the loan quickly when the property is bought for long term rental and it gets quickly refi'd into conventional. Sometimes the HM loan is held for 6 months if the investor is attempting to flip and they dont want to pay refi costs.

From what I understand the 3 points is really where they make their money. For example they want to take 200k and lend it 3 or 4 times throughout the year getting 3% points upfront on each. The 14% is just cream on the cake and acts as pressure to sell or refi out into conventional.

The downside is if someone defaults your left with a property that is distressed and needs work. it can only be sold to a cash investor again which is not the easiest person to find sometimes. On the other end the investor will often do some or all of the rehab and your left with a property that is worth more then you loaned and easy to sell at a profit.

Some of the lenders check credit, others only loan on property value.

Im not sure what it takes to get involved as a HML. Im sure some red tape like mentioned and a mortgage brokers license. Im not sure how much you are willing to put up but might want to find some other investors so you can have a large chunk of capital at hand to make many loans.

Or you could go the other route spex mentioned and just hold a private note for some local investors you find a local REI meeting.

I think our loan officer plays that role. He's the one that charges all the points, I'm just his pawn helping him fill the loan. Still, 13% is fine with me to sign a few papers and send a check.

personal

Awesome thread, thank you for starting it.

Could you talk about your first real estate investment? (What was your age? How much money did you have? What kind of experience or knowledge did you have at that point? Etc.)

Did you have a "regular" job before you started REI? If so, how long did you continue the job while doing REI? How did you manage your time between job and REI?

Any advice on finding a local real estate investing club to join? Google didn't seem too useful, but I haven't dug too deep yet.

Thank you!

http://www.creonline.com/real-estate-clubs/index.html

Spex,

What about the possibility of doing some stuff in pre-foreclosures? From what I understand there are possibilities like the following...

House is worth 150k, homeowner is going to lose the house and owes 93k on the property. You contact them and tell them you can help. They transfer the title to you and you pay off the 93k. From here you can give them a new loan where you finance xxx amount (not really sure if you would start over at 150k, 93k, or somewhere in between) and charge them 10% over 30 years. You would have a lot of leverage holding a 93k note on a property worth 150k, plus be earning a very good yield on a house that has a good chance of defaulting in the future. I say there is a good chance because this person has already proven that he will let the foreclosure process start.

I'm guessing this is how this works, am I close?

Stuckin,

I imagine most foreclosures these days have very little equity in them. It was so easy to borrow against home equity the last few years that everyone just cashed out.

Even after you do a ton of homework and find a preforeclosure with decent equity, how do you convince the guy to sell to you? Why wouldn't he just let the bank take it, sell it for somewhere north of 93k and give him a check for the difference? In the arrangement you propose, what does the homeowner get out of the deal?

Max

Max,

The general con is to play up the don't lose your home angle while obfuscating the details of the actual arrangement which gives the investor every incentive to just evict. It works best on the elderly and recent immigrants with families as they are less savvy.

spex is a pimp. He really knows his stuff. More than I thought he did....


Since this is an ask Spex thread about real estate investing, how did that deal with that owner go? The one with the motel / triplex / mobile home park?

No this is not how it works.

Never let the owner stay in the home after you buy it from them. Lots of investors have gone to jail for "stealing" equity from "poor" homeowners "unaware" of what is happening to them.


My philosophy is, if they can't even afford mortgage payments on their house, why the hell could they ever afford to pay you monthly on whatever lease or terms you sell to them??


It's more like:

Property is worth 150 000
loan is 93 000

Investor pays them 100 000$ cash or investor takes over the loan, gives them some cash, and kicks them out

Just want to chime in and say that this is an awesome thread spex and I really appreciate you taking the time to do it...even tho i'm not in the position to get into something like this (or at least thats what I thought until I head about your MH ideas) this has been a very interesting read. Thanks

I like your style

In this spot what do you think a fair offer to the buyer would be... 10k, 20k? I guess the angle here is to tell them they have two choices... lose their house to the bank, or give it to me and I'll give you some cash to find another place to live for a year or two. Obv smooth it out a little more though.


Can you realy be taken to court over this? That seems sorta ridiculous considering their position.

I think the Mods should def. sticky this thread

GG,
Stephen

Question

Not knowing enough about the calculations but..

1. How in the world does rent from tenants ever cover the mortgage costs of owning a single family home or duplex? You mentioned that most money is made collecting rent and letting the property appreciate.

2. For those who are trying to "flip" - does it ever make sense to bite the bullet and rent the place for a year to ride out a slow market, knowing you are taking a loss per month (again - rent not quite covering the mortgage) sorta like buying a put on a stock for lack of a better analogy.

3. What is your opinion of people who add square footage to a house as part of the flipping game (build for x a square foot - yet neighborhood is worth x+) ?
- Is that getting too much into development as opposed to cash flow collection -

It's very interesting that most money seems to be made by collecting cash flow from tenants and not appreciation which leads back to my confusion on question #1 - again - how does the flow ever cover the mortgage.

Please note, I think my confusion on this issue stems from only knowing some people who have bought single family homes in rather expensive neighborhoods trying to "flip them"

Ok, some of this depends on the sector of the market that you're looking in and how bad your particular market is right now. First, pick 4 or 5 or more properties that would work for you. Second, find out how much is owed on each property. You're hoping to find a seller with a lot of equity because equity gives you flexibility. For the most part residential sellers won't bring money to the closing table, so knowing what their bottom line is is pretty important.

Ok, now make all your offer simultaneously - all four or five of them. Be sure that all sellers know that you've got multiple offers out. Being able to close quickly will help. If you're not working with a buyer's agent, I'd ask the seller's agent to take a 1/2 commission as if you did have your own agent. Put the 1/2 comission in your contract. If the agent says no, just thank them for their time and tell them that you don't think that you'll be able to make any offers. Offers make agents look good to their clients - it makes them look like they're doing something, so the agent will want to bring an offer. On top of that, times are lean, so they'll likely roll over.

Make your offers about 15% or so less than the amount owed. You want to negotiate up to the amount that you know the seller owes. Generally, its better to make offers on non-occupied properties. Empty properties are expensive to hold for anyone, so the seller might be pretty motivated. Also, try to schedule the closing in time for the seller to save himself that month's mortgage payment. So schedule it in the first half of the month if possible and make sure that the agent knows that you've done it that way to save the seller a mortgage payment - if he's any good at this job he'll pass that along to the seller.

Look for properties that have been on the market for a while - 90 days or longer. You can get this info from any realtor. Just be sure that you DO NOT sign an agreement with any realtor to represent you for X days. Realtors are legally and ethically bound to submit all offers to the seller. So if they say that they must have an agreement signed to show you a property or to submit an offer, just say no, you won't sign it. they have to submit your offer anyway, those representation agreements help realtors, not their customers.

I'm sure that I've got more ideas in my brain, but I can't pull them up right now.

My first property was a real old historic house in a college town. the house had been divided into a triplex and then later converted into a duplex. But there were still 3 elect and gas meters and 3 water mains. It had a nice three car garage with 220 electric service - so it was more like a shop.

My wife and I moved into one the downstairs unit and started renovating the upstairs. I figured that all renovations would take about 2 months. they ended up taking a year all told. oops.

Anyway, we renovated the upstairs and them moved up. then we renovated the downstairs. I can't remember the total cost of renovations, but they weren't too high because I didn't consider the value of my time - only materials. Part of the reason that it took so long is that I didn't really know what I was doing so I had to do just about everything twice - the wrong way then the right way. Luckily my neighbor was a carpenter and was sympathetic, so he helped me a lot. Great guy, and we're still friends today.

When I finally got all renovations done, I started advertising the bottom for rent. Nobody called for weeks. I looked in the paper and saw that there were about 20 similar units for rent, all for my same price range. However, we hadn't yet renovated the outside of the house, so it looked really rough from the outside and I'm sure that that killed me.

the problem was that I couldn't lower the rent because I didn't have any room cash flow wise. I didn't know what to do. I hadn't lived in town very long and we didn't really know anyone that I could talk to about my situation. Then my wife, who was a social worker at the time said, 'hey, my agency has a hard time finding rooms for lots of our clients and those guys have to live in hotels...maybe we could try to rent by the room'. Thats what we did.

At the time, I could rent the downstairs for about $550/month and the upstairs for $325/month and the shop for maybe $100/month. We were pretty much breaking even on the house or maybe making a small cash flow becausee we paid too much for it. But with some creative thinking we turned it into a rooming house for the mentally ill. We charged 6 tenants $250 each and utilities were included and rented the shop for $100. Everyone paid a $100 deposit and three bedrooms shared a kitchen and a bathroom. Everyone was on a month to month lease to give us maximum control. We still own that property today more out of nostalgia and as a reminder to me that with some creative thinking you can turn a mistake into an opportunity. it also has a $800 per month positive cash flow today, which is nice, and because of the neighborhood has appreciated about 7% per year on average.

We bought our first property with no money down on a 100% bank loan. We had good credit and a high income given that we didn't have kids. We found a special program for first time home buyers that allowed us to get in with no money down. I worked my full time job, then came home and renovated the house. On the weekends, I worked. I worked all the time. I sucked at the time, but now I'm glad I did it.

Tien - Since I know that you're a fellow professional RE investor, your comments mean a lot.

As to that MHP/Motel/Apts, I decided to pass. The property had great potential cash flow wise. But I kept coming back to what you pointed out at the time - I just didn't have a good exit strategy. I imagined myself making lots of money in positive cash flow and building lots of equity only to find out 10 years later that no bank will finance the sale of this crazy property and I'd have to sell on less than favorable terms. I mean, really the problem that they current owner has had is that he just can't seem to sell the thing, which is what landed him in the bad spot that he was in. I didn't want that to happen to me so I decided to pass. Hopefully the property will get snapped up by some new investor that is creative enough to get around this problem.

The home owner will not likely want to sell to you, but will realize that its better to sell now and avoid a foreclosure than ruin their credit. The responses by Tien and others are right on on this topic, so I don't have much to add.

i will say that I agree with Max that most of the current foreclosures won't likely have much equity in them. Remember that a big reason for the housing slump right now is the subprime borrowers taking our 2/2 ARMs and the like. And most likely those people didn't have any down payment either. So you're looking at 2 years worth of equity here before the % adjusted and killed them.

there was a time when investors had the pick of the litter on preforeclosures. But then the house flipping craze and RE boom in general happened and created a lot of competition for the best preforeclosure properties. Finding preforeclosures with any equity is not hard - its just hard to beat your competitors to those properties. Personally, I'd rather be the guy that lends money to the investor that chases the preforeclosures....thats an HML.

Probably a better strategy is to try to work short sales rather than preforeclosures. In a short sale you're negotiating with the bank rather than the home owner. So the home owner owns $100,000 but the property is only worth $100,000. In order for the bank to foreclose, they might have to pay up to $40k or more in legal, fix up, marketing, etc.

so maybe you could make a deal w/ that bank to buy the property for $70k. Thats a good deal for you, the home owner, and the bank. win/win/win. Believe it or not, banks WILL do this, especially now, where they've got lots of nonperforming RE on their books that they have to move off quickly.

so if a house had an asking price of $200,000 which is a reasonable asking price and the owner owed $150,000 you'd recommend making an offer of $127,000? i just even see how a seller would begin the negotiating w/ an offer so freakin low. im sure you'll say that most wont negotiate but is it reasonable to think that 1 out the 4/5 offers would?

How do you find out how much the owner owes on the place? Is this info available online? Or do you just have to ask the seller?

...

I'm intrigued by this mobile home wholesale idea. There are several mobile home parks nearby. I imagine they have largely been ignored by the huge property boom here in Phoenix. How do these things typically work? Does the park own all the homes or just lease the underlying spot to the MH owner? How would you go about finding people who want to get rid of their MH? Once you find a MH and buy it cheap, where is the best place to advertise that its for sale? This seems like a cheap way to get started. I just don't know how people typically find mobile homes for sale.

Max

I have some questions of my own.


1) What city do you live in and what is the market there? Sinking market?

1a) Are you heavily involved in the foreclosure business? As in, you compile the list, market to the list? I am interested to know how many foreclosures your area has a month and how many people are in that area.


2) What kind of marketing do you do to find motivated sellers? Do you have a marketing system or is it only referrals?

3) How many deals do you do a year on average?

4) Are you comfortable with where you are now or are you constantly moving up the ladder in terms of deal size / higher price commercial properties.

5) Do you deal a lot with commercial properties, i.e. offices / warehouses / retirement homes (I would be very interested in talking more if you have done retirement homes).