All Forum Posts by: Alex Jackman

@Jonathan Klemm I will shoot you over a message. Thank you for responding!

@Dax Mickelson There is no law (that I know of). However, morally, I would not want to promise a distressed property owner something I cannot follow through on. However, I think being transparent with the homeowner on the possibility of not closing is what I need to do. Thanks for your response!

@Canesha Edwards all very great ideas. I have offered owner financing on a few properties with no luck. However, I really like the idea of owner financing. How do you normally structure an owner financing deal? What Terms, Rate, balloon payment/no balloon?

Also, really love the idea of partnering with the current owner. What a fantastic idea that I have never thought of. You can really create a win win there. That would be especially beneficial in higher priced areas of the Chicago / Northshore market where I cannot get lending. Again, do you have any examples you could share on deal structure and/or how you proposed it to an owner?

Question: Should I network to find a partner and hard money lender BEFORE or AFTER finding a deal?

Background: I am new to the investing world with only 1 renovated 3-flat in Chicago and 15k in savings. In order to finance my next deal (fix & flip), I need outside, non-traditional financing (equity partner and hard money). Here's the problem... 

1) I can not offer on publicly listed properties without proof of funds

2) I do not want to promise a homeowner of an off market property the world and not be able to follow through

3) I have had challenges finding a partner willing to take a risk on me (someone with little experience, some knowledge, & a lot of drive) without a deal

I feel like in order to attract an equity investor with my level of experience, I need a deal with so much margin they would be crazy to say no. However, to find a deal I would need to enter into a contract that I might not be able to perform on.

My Options: 

1) Do I contract a property without guaranteed funds and then market it?

2) Do continue networking and wait to find a great deal until I find someone to financially back me?

3) Is there another strategy or option I am missing?

Hey Mark, I use Kevin Meysef out of Chicago. He is very quick and responsive. His contact is (708)8332538

@Rick Pozos Respectively, I think you completely misunderstood my use of a 0% interest loan with the seller. If you understand how zero interest bonds actually work in the bond market, you may be one step closer to understanding this situation. Let me clarify and prevent further confusion for you. 

Let's say I get a $100,000 loan for 30 years @ 5% interest. At the end of 20 years, I personally elect to pay off the entire loan? What yield did the loaner get? He lent $100,000 and received 239 payments of $536.82 and then one final payment of $50,936.85 (the remaining principal). This provides an annualized rate of return of 5.11% 

Now, let's say I want to offer an identical yielding note, but with a 0% 20 year note. How much would I need to "pay" for that identical yielding asset. Well, we inflate the value of the loan to $158,210. The owner still gives me a $100,000 asset, but I owe him $158,210 over 20 years, so I make payments of $659.21 every month for 240 months. What yield does this transaction bring the loaner? You guessed it 5.11%

NOW, which asset is better for the loaner? Answer: the 0% 20 year note

If I decide to refinance tomorrow and pay off the 0% loaner I need to pay him $158,210, but if I were to have the 5% 30 year loan I would owe the loaner only $100,000.

So I would argue, yes, the 0% note is in the best interest of the home owner. He owns a large portfolio and wants to stop managing all his properties. I offered him $450,000, but he was hesitant about the price. Therefore, I am offering a 0% seller finance for the length of his retirement. He will be paid out the $450,000 plus interest (it's just the interest is baked into the principal). If he wants more than $450,000 then I will offer him $450,000 plus 5% interest over the next 20 years, but with the 0% route I guarantee him at LEAST at 5.11% yield on the note. If I repay early, his yield goes ways up and HE benefits. 

I work in treasury. I deal with the capital markets everyday and understand financing and yield at an advanced level. Furthermore, I pride myself on being an extremely ethical and genuine human being. I must say I took tremendous offense when you painted me as a scammer and deceiver. 

I thought this was an open community, where questions like this can be asked an answered.

To address the second lien. If a second lien position is what is needed, then I will look for a lender who will do this. But my plan was to have an uncollateralize promissory note with the seller. Then I was not sure if I had to DISCLOSE this note to a bank. If your grandma gives you a $100,000 loan, do you have to disclose that when opening a credit card, personal line of credit, HELOC, mortgage. Maybe yes maybe no. Maybe you could answer that for me as well.

I am not scamming nor deceiving. I am trying to leverage my dollars as much as possible while rates are so low. 

****(May I just add, I recall a biggerpockets podcast where Brandon mentioned he used a 0% loan with a seller financed property. If I am recalling correctly, is Brandon also a scammer using your logic?)****

Lastly, If you would like me to provide you some references to books about debt markets, I would be happy to provide you with a list.

@Wayne Brooks

@Account Closed Thank you for the replies. Both of these responses help. As for the 0% loan. The 0% loan is to protect the seller. He did not like my "low ball" offer, so I am offering seller financing. We inflated the selling price so he is ensured to receive at least $550,000-$575,000.

Example: Let's say I offer seller financed $450,000 30 year 4% loan, but the seller doesn't want to sell his property for $450,000 because 1 day after closing I can pay off the note and walk away with a $450,000 +1 day of interest apartment building. Instead we inflate the price to a $575,00 loan financed at 0% over 20 years. Now, I would have to pay $575,000 tomorrow to walk away with the building. Additionally, the seller will receive $2,400 per month for 20 years instead of $2,050 per month for 30 years. 

Not saying this will happen, but I will keep you all updated on the outcome! A 0% loan just provides different incentives/protections for him and I.

@Peter Tverdov I didn't think about the inability to obtain a HELOC on an investment property. I'm sure I could find a lender able to underwrite a LOC secured by the property. I don't think I would be able to use private money for the LOC though. I would need 25/30 year amortization with 7-10 year term for the LOC or mortgage on the 6 unit. I feel like a private lender wouldn't be able to provide these terms and or will rake me over the coals with points and/or the interest rate. Maybe someone else can jump in and provide some guidance from their experience. If not, I'll just try to tackle this 6 unit and then shop around with some lenders.

My understanding is that the timing of when the legal title to the property changes hands can be negotiated. So, from what I have read sometimes the current owner keeps the title and sometimes the buyer receives the title. If I were to obtain legal title of the property, with a promissory note to the seller. Could I technically have the promissory note and obtain a equity line of credit? (Also, all my other questions related to credit)

I am looking to acquire a $500k 6 unit apartment building. One of the options to purchase the property it through owner financing ($2,300-$2,400 per month for 20 years 0% loan). If I purchase the apartment building using owner financing, I am curious if a bank will allow me to take out a line of credit or mortgage against $350k of equity and use it as:

a) funds for renovation AND (~$50k)

b) down payment (~$300k) for another ~$1.2M apartment building

In this scenario, I would then have a note with the owner of the 6 unit apartment building, a line of credit against that same property, and a loan against a new property. Will banks allow this type of lending? Will they ask about any private notes against the property? Do I have to disclose the owner financing? Will this owner financing come up during title search? Can I have the owner financing be a unsecured note? Will this note ever show up on my credit report?

Thank you in advance for the help!

Best,

Alex Jackman