All Forum Posts by: Carey Dodson

@Jimmy Klein

@Chris Winterhalter

I realize this is an older thread. I found it while I was researching the hotel investing topic on BP.

We wholesale SFR properties. Somehow in our marketing efforts we received the following lead on a hotel in the Southeast. I don't want to spend a lot of time on this as this is outside our core competency. By the same token, if it's a good value, I'm very open to advice on how to market this to investors that specialize in this area.

Here are the notes from our acquisitions team: "Commercial Hotel and Inn with 75 rooms/75 bt. A few rooms are undergoing upgrading right now. Parking space can fit 300 vehicles. 2.95 acres; Asking price is $1.6M negotiable. Gross income of $45k/mo plus the rental of the other building of $50k. The seller wants to retire and is tired of his business. Nobody is helping him w/his business according to him."

My first thought is I don't want to inherit this owner's problems and do not have the time nor resources for biting off a hotel. But if there is someone out there that sees value in this, I'd welcome the advice on how to redirect this lead. By no means am I claiming that the above numbers are accurate. We’ve not gotten that far in our talks with the owner to have that verified yet. This is all new territory for us both with the topic and this lead.

What is a good strategy to find landlords that wish to acquire properties to rent to students in college towns? We have several SFR properties in a small college town that was struck by an EF-3 tornado a few weeks ago. Therefore the demand for student housing has increased while current owners await insurance settlements for their damaged properties.

@Dion DePaoli

I appreciate your cautious tone as it affirms that to enter such an agreement all parties need to be informed of the risk/reward scenario. I agree that referencing Investor A as a Lender is inaccurate. To take this a step further the existing notes are results of a private Seller-financed loan. The Sellers were flexible enough to allow the subordination and substitution. You are correct in that when a seller does agree to allow other property to substitute on the collateral a separate mortgage document is drafted where the original seller (dare I say lender) agrees again to the terms of the original note with a new property serving as collateral.

I do disagree with your assertion:

"Loans purposely do not contain these types of clauses as that would lead to the exact idea you are trying to skirt which is never paying the loan off and transferring the secured interest of the note to new property. "

If you have a 15-year mortgage note that a Seller has agreed to create and the underlying property is being refinanced within a 2-year period of that note's creation, to collateralize the note with another property - how does this equate to never paying of the loan? If the Seller were flexible enough to agree to the note and their only other option is to accept a discounted pay-off, why wouldn't they agree to the same terms where the only change would be property that is serving as collateral?

Caution should prevail. All parties (Investor A, Investor B & original Seller) should be privy to the transaction. To not move forward and leave it alone may indeed be the best option depending on the intent of the parties, quality of the collateral and legality of the agreements.

Excellent points @Dion DePaoli. One point of clarity that I failed to mention in my original post is that the notes are pre-existing with other property currently serving as collateral. Should the collateralized property sale, the notes contain substitution of collateral and subordination clauses which would allow the Payor to move the note to other property with equal or greater equity as the property that is currently serving as collateral. So there really isn't a new Lender coming into play here other than Investor A who would be lending the equity. (Perhaps a better term would be allowing their property to be used as collateral). Does that make better sense?

Do any of my BP colleagues have experience or more info on a concept that I will refer to as equity loans with equity partners? This would be where Investor A owns equity in a property or several properties and allows Investor B to use that equity as collateral for a note.

I’ve heard of this concept before but haven’t really seen a good case study on it nor am I sure what it is called. A few challenges I could see are as follows:

• 1)Investor A needs to have assurance that if their property sells that the cloud placed on it by Investor B can be easily remedied. One example may be that the notes placed by Investor B have subordination and substitution clauses that allow them to be placed in a junior lien position or moved to a different property when Investor A’s property goes to market.
• 2)Investor B needs to have assurance that Investor A is not interested in placing the subject property on the market within the terms he needs.
• 3)Consideration for Investor A – If the note(s) held by Investor B has a term greater than a term that Investor A is willing to go, how should an agreement be structured? And what is a reasonable amount of dollars for allowing your property to be used as collateral?

I can see the incentive for Investor A earning a premium for allowing their property to be used as collateral. I can also see the incentive for Investor B having a place to park their notes during a time where their equity may be running low or tied up on a fix and flip. But I suspect there are considerations such as those mentioned above and others I haven’t thought of.

@Luigi Ontiveros, I've used Brian Cloud at Cloud & Willis and Alan C. Keith.  I don't know about assignments and double escrows though.  Both attorneys are investor friendly.

@John Mascarenas that was very close to being the issue for me except in my case we had to download the latest version of Firefox for it to work.  It still doesn't work in IE nor Google Chrome.

As a lien holder my company is listed as Mortgagee & Additional interest on the homeowners policy. Is there a process by which I can get a copy of the full policy coverage and be notified in case of a premium default or pending coverage lapse?

Can a policy be purchased to insure lien holders on a property in cases where the home owners insurance only covers the current value of the property? This is a property that is upside down.   (The amount owed is more than the current value). I'm looking for a policy that will cover the shortfall.  If these policies exist, what are they called?

Hi Christopher,

From what I have observed and started out in the area are Center Point, Roebuck, Forestdale and Fultondale areas.  These areas tend to be healthy rentals that can be in the $800-1200 range where property can be picked up at 50% of their value in some cases and still avoid the stigma of war zones.  I'm a relative newbie and I'm sure the veterans can add their insights as well.