All Forum Posts by: Bryan Hartlen

@Jim Stanley I'll give you a 2nd opinion that is contrary to most of what you heard. I'll preface it with a statement that you should be extremely confident in the capability of the primary flipper, the rehab plan and the ARV of the subject property before ever jumping into this kind of arrangement. With that caveat / understanding:

What you are talking about is called GAP funding. I have made several GAP fund loans and have utilized GAP funders on flips of our own. It is a higher risk investment.  You get paid 2nd and you generally have little to no decision making control.

You need to make sure that you have a note AND a recorded lien. You should be provided full access to the rehab plan and costs at the front of the project (even if you have no say in the day to day decision making). You should have full access the rationale in setting the expected ARV. Your agreement needs to be explicitly clear in what happens IF extra funds are required (for any reason). You can ask for, but may not be given, full access to the running expenses on the project.

As Jay pointed out, the primary risks are the project encounters an unexpected problem that results in increased cost and/or time. The lien is really only as good as the margin in the project. If the selling price doesn't cover expenses, your note is exposed unless you were able to get a personal guarantee on the note (and the flipper actually has the resources to do so). This is typically unlikely. It is possible to foreclose from 2nd position but it's complicated, generally requires more investment in legal fees and then other investment to do ‘something' with the property. So you need to get a premium for the increased risk. I would not do it for 10% APR: we typically do ours at 8 - 12% fixed rate for the flip up to a max of 6 months.

So, it’s not necessarily a bad proposition but you need to know who you are investing with and be very confident in the deal as it is higher risk. 

Hi @Christopher Lynch.  We’re in AZ and we invest in Birmingham. We typically focus on C/D class neighborhoods for Section 8 rentals and B class neighborhoods for flips. 

Often the water company won’t let you turn the water on without clearing up any past due balances. Forces the issue assuming that you want your buyers to see all the utilities working. 

You should be making offers at prices that drive cashflow and an overall return that you're comfortable with.  That said, if your return expectations are out of sync with the current market you wouldn't expect many deals to be accepted.

If you don't think your offer price isn't going to work, look for other ways to improve the deal (alternate financing, new income streams, etc) to see if you can bridge the gap between his asking price and your needed returns. 

@Jared Sandler in general, as a buying investor, if I wasn’t sure about the properties condition, I would avoid appraisals and jump to an inspection (full blown or investors/systems).  If you’re selling a property and the buyer is financing, then you won’t have a choice and the bank will order it’s own appraisal.  

@Rick Pozos thanks for the input.  I’ll check but I think these notes we’re all in the mid west somewhere. 

@Chris Seveney thanks for chiming in. The trailer park segment has been getting a lot of investor attention over the last year so this has been an interesting thought exercise.  I don’t know that I’d value them that high - one of my concerns would be how to perform due diligence.  Without recorded titles what do you do?  It would also seem that exiting the investment would be more difficult as there doesn’t appear to be a secondary market. It would require finding the right investor (maybe the park owner?).  On the positive side, from what I’ve heard, the eviction/repossession process is much faster and cheaper than an ejectment or foreclosure. 

Assuming you could buy it right, I could see investing the a portion of one’s high risk / high reward portfolio in this type of note, but couldn’t see it being the primary staple / strategy.

This is an academic question for me but it was prompted by a discussion with another investor. That investor was trying to value a portfolio of 30 notes on mobile homes. Trailers only - land belongs to the park. Assume they are performing. All notes are seller financed by the seller (no underwriting), low value ($10 - 20k UPB), $200 - 300/mo P&I, 5 - 20 years left.

Is there a secondary market for this kind of paper? Have you met other investors that buy in this space?

As a buyer of ‘traditional' notes, what kind of discount from UPB (or market value) would you expect this kind of note to require in a secondary market?

You may have found an anomaly. Payments (P&I) should be pretty accurate.  Late fees, arrearages, escrows etc can be a mess. It could also depend on the source of the data for the note you are looking at... a serviced note from a servicing company that Paperstac links to should be accurate, a serviced note should be relatively accurate (it has an opportunity for data entry errors) and a note without professional servicing will have a high probability of being inaccurate. Build your tool to account for the key parameters - when they don’t jive that’s an area for greater due diligence. 

Here's another https://realestatefinancialpla...