All Forum Posts by: Brian Burke

At that deal size, non-recourse financing is common. As Will pointed out, experience will be a key underwriting criteria. It seems strange, but I've had an easier time borrowing $5 million than $500 thousand, and worse yet the smaller loans are typically recourse. Expect to put 25% or more down, have cash reserves, and enough money for closing costs and utility deposits, so $6 million won't get you a $30 million property with non-recourse financing.

If you don't have the experience, become a capital partner with an operator that does. Good luck!

I do a few syndicated multifamily deals. Did two last year, one was a 54 unit property, the second was 136 units. I'm selling the first one because my investors will get a higher IRR if we exit now than if we were to carry it to its intended 5 year term. Their IRR will likely exceed 50% if nothing changes, escrow closes next month so I'll know for sure after everything is distributed.

My second deal last year was less of a value add and more of an income investment. The investors are getting an 8% pref that so far has been 100% distributed with no accrual. After resale in 2016 their IRR should be in the low to mid 20% range if all goes according to plan.

I think the common pitfalls primarily relate back to the sponsor. What is the sponsor's track record? Experience? Financial strength? Alignment of interest? Is the PPM properly drafted? Are all of the risk factors disclosed and understood? Is the sponsor complying with SEC requirements for Reg D offerings? Are the financial projections well thought out, and are they reasonable or pie-in-the-sky? Too many syndications underperform or lose money due to inexperienced sponsors modeling their deal with rosy projections.

I'll be doing another one within the next few months, as we'll have completely cycled our 54 unit deal and our investors will surely be looking to place that capital into a similar investment.

Certainly you want your seller to complete it so that you will know more about the property.

When you sell, you are required to disclose all known defects. This would include defects that the seller disclosed to you (that you didn't fix), along with other defects you discover. You incur more liability for not completing the disclosure than for not disclosing a hidden defect that you didn't see.

I always include a statement in all my disclosure statements that says "seller has never lived in the property and has owned it for a short time. Seller is not aware of all of the property's defects, and advises buyer to obtain, and rely upon, professional inspections to determine the property's condition and suitability."

Don't rely upon that statement for a get-out-of-jail-free card. If you see something wrong, put it in the disclosure.

Not only are interest rates great, but the real estate market capitulated recently resulting in very favorable acquisition pricing right now. Those two factors together make this an excellent environment to accumulate property. There is a strong thesis that asset values will increase over time, and those that take full advantage of this confluence of fundamentals are poised to become very wealthy (or wealthier). Utilizing the inexpensive leverage currently available allows maximum asset accumulation.

All that said, the choice to invest levered or un-levered is a personal choice that is dependent on individual goals and risk tolerance. Perhaps you will miss out on levered wealth accumulation, but you will sleep well at night. Kudos to you for at least being in the game.

You need an EIN, which you can get yourself at IRS.gov. You also should have an operating agreement. California also requires a "statement of information" to be filed, that will vary from state to state. DBA shouldn't be necessary as long as you do business in the name that is on the filing documents. You might also need a business license if required by local jurisdiction.

That said, once the articles are filed, the entity is legal, you just can't do much with it (like open a bank account) without the EIN.

I can guess how you know, and you are right.

Sorry to be a downer, but I've just seen too many people try to buy a personal home at the trustees sale, all for naught. Just trying to keep it real.

If you really want this house, follow the auction and watch what happens. If it eventually goes to sale, you will see if the bank buys it back (then watch for it to come up on MLS and you can buy it REO) or if an investor buys it, approach them after the auction and see if you can work a deal, if you'd still want it once you see where the bidding goes.

Notwithstanding my previous outline of the risks of the trustees sale, it seems that there may be more reasons why this might not be a good idea for you. The reasons you just outlined tell me that you would have to make costly sacrifices to gather the money to bid. I buy a lot of property at trustees sales, but my hit rate is somewhere around 1 to 3 percent. That might sound low, but it sounds even lower when you realize that I'm prepared to bid on all 100 or so houses that go to auction every week where I operate and only get a few.

It's a lot to expect to target a specific property and make those kind of sacrifices for those odds. Can it happen for you? Sure. Just be prepared to buy something else (on the retail market!) if this doesn't work out for you.

Discounts I'm seeing lately are 10 to 20 percent, minus needed repairs. Significant, but perhaps not enough to justify the risks and sacrifices you face as a first time home buyer in a process dominated by bidders with very deep pockets.

I've bought plenty of houses at foreclosure auctions that had IRS liens. The above posts are correct that say that the lien priority is set by the recording sequences of the lien vs the foreclosing loan. Senior IRS liens (rare) must be paid after the foreclosure. Junior IRS liens (typical) are wiped out by the foreclosure sale but the IRS retains a statutory 120 day right of redemption, during which time the IRS can buy the property from the purchaser for the price the purchaser paid plus any reasonable cost to preserve and secure the property.

That said, it is very rare that the IRS redeems, unless there is a LOT of equity. Just wait 120 days before putting any money into the property.

If you want to speed up the 120 days, you can "buy out" the redemption right from the IRS. I've done this twice, once I paid $7,000 and the second time I paid $500. I overpaid the first time, so I learned my lesson and the second time I didn't get suckered.

I would agree with Joel. In most areas I've been buying in or researching, properties are selling below replacement cost. When that reverses, building starts to make sense.