All Forum Posts by: Adam Dylik

@Jeff Cichocki , 

I do appreciate your time and your replies. When someone says "I'm not trying to beat you up" or "no offense" there will generally be that which you just stated is a false notion. That's about as far as I'm going to go on the subject since I did take some offense to the implications and tone from the reply. Yes I recognize you are trying to help in an aspect and am appreciative that you took the time out of your day to write your response. 

Just a little more insight about myself, and I know this will sound/come off as bragging, full of myself, or conceited; however please take this as me trying to be humble while giving information as to my point of view in regards to HMLs. I finished my MBA with a concentration in Finance from a top tier business school at the age of 22. At 23 I was the youngest person ever accepted into my Doctorates program in business (DBA not PHd.) at the University of Liverpool and am currently ABD (all but dissertation). The program focuses on Critical Action Learning- or simply the process of problem solving while learning in a business setting. I bring this up as to show that I do view both sides of the equation- me as a borrower and the lender themselves. That I do understand the concepts of risk, time value of money, but also opportunity cost.

Back in the day before everyone and their grandmother saw "flipping" shows and thought "Gee.. I can do that too!", hard money rates were much lower than they were today. I know this because we used hard money many times back in the late 90s and early 2000s before all the flipping shows caused sensation in the marketplace and in a time where interest rates for other investments were generally higher than they are today, including the fed funds rate. For brevity I will leave the market change here. You get the picture.

The source of the reason why I ask about collateral and over collateral is to see if anyone has any real world experience as opposed to theoretical when pricing in the reduction in risk to an investment. There is nothing wrong with my deal, the subject property had northwards of 10 offers on it, and even had an offer come in after ours was accepted (already 26% over list for my offer) that was 7k above mine and is the current backup offer. The problem is not the subject property. The problem is also not me as I have four HNW individuals interested in the deal- 1 made me an offer, 1 is still running numbers, and 2 told me to propose numbers to them. They all know I have paid off properties, but I did not offer them up for this deal as of yet. 

I am trying to equate how in negotiating, using the properties as additional security can get me a rate that lets say for *****andgiggles is 2% lower than without- is it worthwhile? How do I value the extra security of the additional collateral? The question becomes- where else are you going to find a deal this secure/low risk with a return this high (without overpaying)? A or B grade bonds paying 1-5%? C or D grade bonds paying 6%+ ?  Preferred stock paying 4-7% but you pay a premium over par which can be called back?  A bank CD paying 1.25-2% for a year?   

I hope this clears some things up. 

Thanks! 

Any thoughts on my initial questions outside of the hard money lender topic and in regards to private debt or equity? It seems hard to quantify the extra collateral and price in the reduced risk without overpaying. 

Thanks 

@Jeff Cichocki ,

I can understand your positioning and in my previous post apologize for the suckers comment and related an experience that might have biased me.

I believe there might have been some miscommunication on my end. You referenced me walking away from the property or making a poor series of choices as if I took the HML at that rate, did work, and walked away after accepting the loan. I believe that is where I miscommunicated.

I did not take or accept the said loan in the first place as I was not willing to take those rediculous rates and claims that we didn't have the experience for their lower 8-10% and a point or 2 rates. To further this, I went to 6 hml, 3 said they wouldn't make an offer due to discrepancies in valuing the subject property- it was a 4700sqf older build (1975 Georgian) in a neighborhood of 2.5k-3k similar age properties and a few blocks away a small section of 3k-3.5k new builds. It was by far the biggest house in the surrounding area for almost 2 miles in a suburban city on Chicago's southside. Just for reference- 3 of them were valuing the property, when fully renovated to be worth less than most of the 3k sqft newbuilds 2 blocks away. Out of the other 3, the 15% and 4pts and additional draw fees, inspection fees, etc. was just too much for me to pay and to risk, especially with a property that size it could have cost me even more trying to find the right buyer. To say that that was the best rate of the 3 offers still makes me cringe a little.

However I believe we all got away from the subject at hand and my original questions when coming to private money- not just hard money.

How do you account for additional collateral of a free and clear cashflowing house, or even a second one, on top of the subject property in private money rates from private investors or private funds (not hard money or conventional banks)? Where would you draw the line on what you're willing to pay due to the security of 2 or 3 properties for a 75k loan? 

Best regards

Adam

Derek,

My apologies on using the term "suckers" in regards to hard money lending and if you took offense to it. I recognize the value of a hard money lender but I have also seen over the years how the rates have generally gotten out of hand- on a past deal I had under contract but walked away from the hard money as it was offered to me at 15% and another 4pts for closing and me still coming to the table with 20% due to claims that having done a half dozen personal flips, my partner being a GC for 40 years, and doing 100s of renos... we didn't have enough experience for the lower rates. Gives me a bad taste from that experience. 

I guess my question to you would be how do you account for the potential borrower putting up a free and clear property that is cashflowing, in equivalent market value or slightly above in a private lending situation as opposed to hard money into a lending rate for the money knowing that between the two properties and the cashflow, the investment is overly secure. What if we were to put up two free and clear properties valued at 270k as additional collateral on a 75k loan, thereby having 3 properties as security for the loan of 75k? Have you ever dealt with a problem such as this?

Additionally, I should have mentioned that we sunk most of our free cash into the last paid off property (60k) and wouldn't easily be able to come up with 20% for hard money currently and would prefer not to if we could help it or put up as little as possible currently till we regain some liquidity. 

Thanks!  

Hey everyone, 

I recognize this is my first post, however I have been a lurker and avid blog reader here on BP for a couple years now. With that being said- I recognize that I am not asking or begging for anything. This is a legitimate question I have and would appreciate any and all advice, connections, or interest in my problem. As with forum guidelines I am NOT offering or asking for investment. Now that that's out of the way:

Problem: Raising capital for the purchase and renovation of a flip property I currently have under contract closing on 2/24 or earlier if chosen through Fannie Mae for a HUD reverse mortgage foreclosure property located in Park Forest, IL AND how to value an additional free and clear property that is cashflowing as additional collateral and security to the investor(s)? (I have a standing offer for the purchase price at a ridiculous rate currently that is from a well off friend and available last minute if need be)

Details: I am 50/50 partners with my grandfather. My grandfather is a general contractor specializing in repairs. renovations, and maintenance for several large property management firms on the south side of Chicago since the 1980s. He has also completed 7 flips in the past before 2009. Myself- I have been working on and off for him since I was 14, being out in the field and running the office. I currently do not hold "employment" with the contracting company and am a professional poker player who does not report much verifiable income. Due to my grandparents health, they have reduced the size of the company and business to a point that cash flow is a problem for traditional loans both business or personal. 

We own 3 FREE AND CLEAR properties with a combined value between 450-500k based on recent comps and have been having trouble pulling a heloc or getting a portfolio line of credit. Side note- my grandmother who is also on title will NOT sign off on a standard cash out mortgage on a property or the whole portfolio. I have two good friends who are mortgage brokers in the chicago area who have both been unsuccessful in finding a line of credit whether it be investment or as a personal on a personal residence. 

One of the properties is currently rented for $1200 a month, newly renovated as of January this year that I did with my own two hands and only subbed out the landscaping and the upgraded plumbing, and valued at 80k (clearing $940/mo after taxes and insurance) Link to pictures and video walk through https://drive.google.com/open?...

The deal I have under contract is a couple blocks away from this investment property, under contract for $37,739, renovation budget is $42k. Consistent and comparable recent comps have been selling for 130k. I just completed the inspection and know the house is solid but does need a few major replacements- windows and roof. I know what the property needs. I know my numbers, have the subs and the knowledge of the local labor market along with the remaining manpower from our contracting company in addition to my skilled labor daily working on the flip and managing the project.

With the knowledge that I would be looking to raise roughly 75k and having 5-8k in the game ourselves for a 6-8 month flip from close to close, what would be fair rates either interest wise or even equity wise from a private investor(s) IF we are also willing to back the investment with a free and clear, cash flowing property as additional collateral to effectively de-risk the investment to almost 0 for the investor. How do you value the extra security of an additional property that covers the investment on top of the subject property being flipped? Knowing what hard money rates are for (suckers) and knowing what private money reasonably goes for to those with good track records, where would you set your cap as the party looking to borrow the capital for the project and say that this is too much for me to give up with the security being offered on the investment (I recognize this is a personal opinion moreso than not, but I'd like to hear where your ceiling would be if you're in my shoes). 

My apologies for such a long post- it always seems like most people who have an intricate problem or question do not give enough pertinent information to begin with so that others can give informed and specific answers. 

I appreciate your time. 

Adam Dylik