All Forum Posts by: Dan K.

@Charlie MacPherson Thanks for the response & insight. I talked with my buddy and he did confirm it was an in-house loan that, as you suggested, may have conditions set up for if/when the loan would be sold. Through his agent they were able to have the buyer press the lender to perform in a timely manner, as up until then the lender was dragging the process out and adding on items (the 2 appraisals) only at the last minute.

Regardless, they were able to finally close. My buddy is marking the experience up to 'been there, done that, glad I survived' as well as the joys of dealing with small rural markets.

On behalf of an very close investor friend that's dealing with this: 

Buddy picked up a property in a rural community in New Mexico for 1/2 of what the property should have sold for. Seller had listed it 25% less than what it should have gone for because they needed to sell ASAP. Buddy offered 1/3 off their listing & seller took the cash & quick close offer because of the personal circumstances they were dealing with. (actual numbers not being disclosed to protect the innocent!)

My buddy discovers there were other interested parties but they didn't have financing lined up in time & one of the parties is willing to pay the original listing price which they have qualified and have been approved for. So 1 day after my buddy closes he goes under contract thinking this will be the quickest flip ever! (wait for it...)

A couple days before closing my buddy discovers that the buyers lender (they are doing a in-house loan) claims that since it's a flip they'll only pay 10% more than what my buddy bought it for and lender says that he's making too much money off the re-sale and he needs to reduce his asking price to 10% more than what he bought it for. (Uh, what's that? Did I hear that correctly?) 

Buddy isn't suppose to know what lender said so there's some back & forth and then lender seems to cover their butt and comes back a couple days before they were suppose to close saying they need 2 appraisals of property because it's a flip. A flip that the lender knew that it was from day 1. Buddy is frustrated but is confident (as is his agent) that appraisals will come back above what he is trying to sell for, and goes forward because he figures it'll take longer to have to relist & start all over.

First appraiser comes & goes & buddy is waiting to hear on that report. Second appraiser is scheduled but tells my buddy's agent that they need to know how much he bought the property for because he needs that info to help him assess the property.

STOP RIGHT THERE! I've never claimed to be an expert but I've never heard of such a thing. I thought an appraiser is appraising a property at that moment in time on what it appraises for based on the current market. How is the previous purchase price relevant in this situation. Even if it's a flip, how is that amount relevant not knowing the circumstances on how that amount was agreed on. What if my buddy got it for $10K because seller was REALLY desperate or paid $10K but also gave the seller a $40K RV. Does that mean the lender is only going to loan 10% more than the actual purchase price on a property that's worth, say $100,000? That makes NO sense!

So I'm trying to process this and knowing that it's a flip maybe there's some rules I'm not aware of. But I still don't see how if the lender knows that previous purchase number, how are they able to only lend 10% more? How does the lender/appraiser know if/what repairs/upgrades were made to the property and how much they cost and how to determine if the previous owner did the upgrades or was it the new owner? And how does the lender/appraiser take into account that the previous seller NEEDED to sell the property, even at a greatly reduced price? Is that accounted for somehow? Or what if oil was discovered under the area and sent home values soaring. Would the lender still only approve a loan amount for previous purchase price +10%? (Don't think so!)

Realistically I can't see how the previous purchase price should play into an appraisers report or even considered by the lender for evaluation. A property's current value at that moment in time is all that should matter. Don't know where the two appraisals will come back at but I told my buddy I'd find it highly suspicious if the appraiser that asked for his purchase price comes in much lower than the other appraiser's valuation and very close to the previous purchase price + 10% that the lender THINKS the buyer should be selling for because they don't need to make that much money off this property. If that happens, isn't that the very definition of collusion?

Am I wrong? If so, what am I missing? Anyone else encounter anything like this? Asking because I Just hate to see my buddy getting screwed over.

@Stephen R. First off I appreciate what you are trying to do. If you haven't already check with the VA, they have multiple programs that work to provide temporary & permanent housing for Veterans. Also Google HUD-VASH Program and Veterans Home Care for programs that are in-line with what you are trying to do. Take this how you want: 20+ years ago I heard about a landlord that was threatened a discrimination lawsuit (why yes, it was in California!) because he didn't rent to non-veterans. Never heard how it played out but since the landlord was including preferences/limitations on who they would rent to the consensus at that time was that the landlord was in violation of federal & local discrimination rules. Don't know if that would play out the same way today but I imagine there is a way that you can legally qualify & designate your property just for Veterans. Best of luck.

@Jonathan Orr thanks for the response. Did check with county & because it's a rural area gravel roads are fine. A local company quoted $11K to put in a well & septic for each lot, but could be cheaper if multiples are done at the same time. The subdivision is already mapped out with the county with lots & roads. Never got around to asking about engineering plans because after researching nearby land costs I discovered that the base asking price per lot is way overpriced and the whole 200 acre purchase price of $250K is also way overpriced as well. 

All this as well as how long it took for the number of existing properties to be developed and the fact that putting in the roads and burying the water lines for 70% of the development still needs to be done, I'll be looking elsewhere for invest.

Need to verify specifics but was just told about this pocket listing & here's what I know so far:

For Sale 200 acre development for only $250K; has 130 lots (~20 lots are already developed with houses); lot size is from 0.75-1.5 acres; in Phase I of development (roads for about 40 homes are graded & graveled with electrical buried), rest of land has not been touched; owner is currently selling individual  lots from $15K - $25K (generally more expensive lots have a well & septic, cheaper lots don't); manufactured or stick-built homes allowed; restrictive covenants attached (waiting for document).

Location is in a rural area in the SW; local economy is based on transportation, agriculture, energy, retirement & tourism; 3 miles from a major interstate highway; on a major shortcut between 2 interstate highways; 10 mile radius population is ~ 20K; closest city with over 100K is only 1 hour away; cost of living & living expenses are definitely on the low end, great for retirees and the cheaper than average labor.

Quick overview & simple math tells me that only selling 90% of the lots at the low end of $15K is just about $1.5 million. Even if it takes 15 years to sell those lots that's $100K/year. Obviously there are some additional costs involved but all I see right now for future expenses is running electricity and grading & graveling the roads for the rest of the development. Besides insurance & property taxes are there any other expenses I should be aware of?

I believe that grading & graveling the roads will be the largest expenses. Anyone want to ballpark or guesstimate those expenses?

Have never looked into anything like this before so am interested from anyone that has been involved in a similar deal, so I know what questions I need to get answers for, what I should expect, and how & what to calculate to evaluate this type of deal. Heck, is it even a good deal.

Thanks in advance.

My 1st post so please be gentle. Who am I kidding, no sugar coating, be brutally honest. I need to hear good, bad & ugly and anything else I haven't thought of. Thanks.

Just the facts:

-Owner has a property where he lives & has space to build a small backhouse.

-Owner will make this a rental

-Owner does not have funds to build

-Owner recognizes that investor is bringing considerable additional value to property

-Investor (me) has funds to build

-I may or may not do a percentage of the work/build

-I want to set this deal up so that it is fair to all parties but I still need to make it worth my time.

For sake of argument & simplicity let’s say:

-this is allowed where he lives

-size will be 550 square feet

-everything will be done to code

-to build will cost $50,000

-after all official/legal approvals, start of build to completion would be 4 months

-unit will rent from day one at $1,500/month

-unit would be individually metered & renter would pay 100% utilities

-the housing and rental market for the area is & has been strong with consistent growth, before & since the crash

My initial random thoughts:

0. Don't expect too many surprises doing & completing the build. 

1. Should this rental be professionally managed to create a clear paper trail of funds for all parties? (I will most likely not be living nearby after completion) PM until I have been completely paid.

2. Since owner has land and I have the money, and the deal wouldn’t happen without both individuals, should rent be divided 50/50? If so, for how long?

3. Should I just treat this as a private loan and take 100% (or x%) of rental income until my money ($50K) and my costs (hours of Labor, if I do some of the work) has been paid back + a percentage?

4. Is it fair for me to consider the additional value that this structure will bring to property, especially when they sell?

4. What’s a fair percentage/amount to make on my $50K + my labor costs?

5. Agree to a percentage split of rental income for ‘x’ number of years

6. Agree to a percentage split of rental income until I’ve been paid back my funds + labor + a percentage?

7. Need to include contingencies for if owner sells property before being paid back

Anxiously waiting to hear feedback from this incredible community. Especially interested in unique and outside-of-the-box solutions.