All Forum Posts by: Scott Hubbard

Generally, if you have a land contract, your required to foreclose within the parameters set by your state and county where the property is located.

The land contract effectively makes you a lender and the buyer now owner of the property. Within the contract itself, it will clarify what constitutes default. Once default has occurred, you must serve the owner notice of default in order to get the ball rolling.

Unfortunately, I believe you will find you are unable to foreclose pro se.

If your land contract was done through title or a closing attorney, you should start there as they will likely be able to offer guidance.

Another option, after you file a notice of default, is to approach the owner and ask for a deed in lieu of foreclosure. This is voluntary and you might offer them an incentive to do so. Again, your likely going to need legal assistance or at least advice in order to process a deed in lieu. However, if you do the legwork and offer a little incentive (like moving expenses) you might be able to save yourself money in the long run including legal, lost revenues, opportunity costs, property damage, etc.

If the owner does not cooperate with a deed in lieu, then you may have no choice but to file a lawsuit to foreclose.

Good Luck

You will need to qualify for a bank loan in order to purchase the home.

So, in my opinion, your next step is to meet with your bank or a loan officer to see how much you will qualify for.

Since LTV, when purchasing distressed properties, is actually the purchase price then it is technically 100%. However, I end up putting in around 20 to 30% worth of rehab, so the adjusted appraised value after work has been completed averages around 65%. Since my lender's refinance program requires a maximum LTV of 65%, plus a minimum of 6 months cash reserve, I am very careful and usually hit my mark because if I do not, I then have to come out of pocket.

Creating a list of private investors is a never ending proposition. Mostly, I talk with local business people and professionals whenever I get a chance. The bottom line is most people want to invest in real estate, but do not have the time, are not savvy enough, or settle for break-even just to say they own real estate.

Once you show potential investors all the time, stress, and expense involved in rentals and demonstrate that they stand to make a lot more as a debt partner, their ears generally perk up. Everybody wants to cash checks and do very little work, right? Yeah, I actually show them how much work goes into a rental and the costs I incur.

The hardest investor is your first one...

You have some excellent questions....

This is not necessarily true. I use private capital with a 2 year stop with and interest only payment. I effectively can offer investor 8% and even up to 9% on multifamily above 4 units. $50K minimum investment.

After the property is performing for a year, I can refinance for around 5 to 5.25% with a local credit union.

I, then, roll them into the next deal. The average rotation is around 18 months.

My goal is to build a 300 unit portfolio of rental properties. So, yes it is a long-term cash play.

My business model targets distressed properties that are in need of much rehab and therefore are not able to be financed by a traditional lender. Hard Money costs are too high and they are generally want to be repaid in six month to 12 month.

I tie up much of my own capital in the rehab and purchase costs, so I cannot offer higher returns as I need a return on capital too. I would offer a higher return if an investor wanted to be a debt partner on a multi-unit.

This is a poor strategy as equity is not what a professional investor strives for. Cash flow is the name of the game as we RE investors incur real expenses month over month and we rely on margins to cover those expenditures. Future equity is intangible and many people who are losing their homes have been burned by the very same "strategy" you suggested.

To put it simply, I cannot pay 12% on notes simply because there will be a much risk for the capital investor and this is really about a low risk venture with a moderate return investment with monthly returns.

They will only make money on these flips if the show is picked up and more episodes are ordered. I for one feel the misinformation does harm to our industry and I hope the show flops.

Here is where I see possible problems with the lack of interest in your this deal. Keep in mind, I am unfamiliar with this market.

1. It is listed in the MLS.
2. It has only 1 bathroom which can be a problem come resale or rental time.
3. Rehabber's usually look for 50 to 60 percent of ARV from wholesaler's which this is not.
4. For buy and hold investors, most will use the current rental rates and unless this neighborhood is getting $1400.00 a month rent, interest will be limited.

This one is much of the same.

1. It is listed in the MLS.
2. It has only 1 bathroom which can be a problem come resale or rental time.
3. Rehabber's usually look for 50 to 60 percent of ARV from wholesaler's which this is, but your asking them to put in a $30K rehab. This might be tying up too much capital for a minimal return.
4. For buy and hold investors, most will use the current rental rates and unless this neighborhood is getting $1000.00 a month rent, interest will be limited.

Here are some potential things you should consider before making an offer.

1. ARV does not equal purchase price + repair costs. ARV is the value of rehabbed comps that have recently sold nearby. It is a term an appraiser would use should a property be brought to current standards. Many investors wrongfully assume ARV means paint and flooring, but it also means brings HVAC/mechanical, plumbing, and electrical up to current standards. If you take a look at property #1, I believe your repair estimate may need an adjustment.

2. Your profit projections need also to take into account closing, carrying, and commission costs. This is generally around 10% or the eventual resale price. In your case, you should adjust your profit projections to include this expense.
3. Wholesale fee - Generally a wholesaler should expect a 0 to 3% fee on the purchase price. These are going to be the average fees especially on listed properties. Once in a while, you may hit one out of the park because you were able to negotiate a very good price. In my opinion, these are not great deals and you probably are expecting too large a fee.

I agree with Mitch... A mixed strategy is best unless you do not want to expand your portfolio. Excess cash sitting on your balance sheet is losing money in this environment.

This complicates things a bit because he will likely need to have this in his own name to in order to finance.

Can you assign the contract? If not, perhaps you may be able to amend the current contract to allow assignment. The seller would have to agree to this of course.

If you can assign, then your capital partner can effect a loan and you can do a partnership where the principal loan has first priority of payment.

In a normal investing environment (i.e. fix and flip or buy and hold investing) margins are generally very thin. Normality is where inventory levels are at or near historic levels and where supply and demand are also near equilibrium. If you cannot make decent profit in a normal market environment, then chances are you need to look into your business model to find out why.

If supply and demand are not at equilibrium and margins are still thin, then you must have some sort of external force causing dysfunction. There could be a myriad of reasons for this including a temporary spike in demand or conversely a drop in demand. Time will usually tell whether this is a temporary spike causing the disruption.

My advice to you is to research the market by talking to other local investors doing similar activity. Also have your agents pull as much historic and present day statistical data you can. Generally you can meet with a local MLS association to get any public data they report. But be careful, their data is not always dependable especially if you look at shorter periods.

Good Luck!

If the deal is definitively a one and done deal, then I agree with Mark that using a mortgage or trust deed can be a good plan.

However, with SAFE Act, you would not want to do more than four deals a year with the same investor this way.

Also, using an LLC where your partnering on a single deal can be more expensive than necessary. You have sartup filing fees and dissolution filing fees.

In my opinion, doing a JV partnership, whether it's a single or serial deal, is your best course.

I have attached a simple example of a JV agreement. In this agreement, the capital partner holds title and the real estate investor manages the renovations and markets the property.

This is a very simplified version and is intended to be a template whereby you fine tune the details with an attorney to correspond with your goals.

Once you have a completed agreement by your attorney, you can keep using it over and over again.

Advantages:

1. You avoid SAFE Act because it is a partnership and not seller finance.
2. It is usually cheaper than setting up an LLC for each project in the long run because you can use the template over and over again
3. There is also some anonymity by using this agreement closely held whereas an LLC requires public notice

Disadvantages:

1. There is no asset protection with a JV, so it is recommended the partners be either a corp or LLC
2. The legal costs for setting up a JV can be as or even more expensive than an LLC