All Forum Posts by: Desi Arnaz

Years ago when I was in my late 20s I purchased a bunch of single family rentals with 15 year mortgages.  My plan was to have them paid off by the time I was in my early 40s.

At the time I didn't have very much cash, so I leveraged each property as much as the lenders would permit.  It seemed like a good idea, but the reality was that the cash flow of most of these properties was negative.

In the long run, those negative cash flows combined with repairs, vacancies, property tax increases and volatile economic conditions got the best of me & I had to sell many the properties in order to avoid losing them.

Needless to say, I am now a proponent of only acquiring properties that have a positive cash flow.

If you can acquire a property with a 15 or 20  year term AND a positive cash flow...that's not a bad thing.  But avoid the "alligator" known as negative cash flow.  Even a small gator can inflict serious damage.

These days I put my money in cash-flow mortgage notes. No alligators, extremely low carrying costs and great, consistent ROI.

I love to see young people with vision & purpose.  By adding BP to the mix you will also have direction & counsel. A Winning Combination.

Hi Russell,

Welcome to BP.  Tap into the resources on this site & your business will be off to a great start.

I've got 35+ years in real estate brokerage & investing but I still learn a great deal from the BP family.

Stay plugged in and you will have access to some of the best minds in real estate investing.

I live in California (San Diego) and a couple of years ago I began investing all around the nation.  BP has enabled me to invest with confidence in markets that I have never even visited.

Good luck to you & your family in your new adventure.

I agree with Richard Dunlop regarding the sale of the unseasoned Note at 100% of UPB. The value of the Note on the open market is a function of several factors not just the Note Rate. The type of collateral, the status of the local real estate market, the strength of the borrower, the terms of the Note (rate, term, payment amount & frequency, balloon, subordination, etc), the payment history of the borrower (seasoning), compliance with origination regulations, with or without recourse. These and other factors will influence the price you receive for the Note.

Perhaps you should consider selling a partial.  This helps mitigate the risk for the Note Buyer & if the Note performs well, you will have a more valuable instrument when you get it back.  I don't know the term of the Note but a balloon payment will often give a bump to the value of the Note.

Thanks for the feedback.

Hi Paula,

I like using my IRA to buy small 1st position cash flow Mortgage Notes. Of course I enjoy the cash flow but I also enjoy the high returns and peace of mind that comes from knowing that my investment is safe under a blanket of protective equity.

Good job & creative financing strategy. It's amazing what we can do if we think outside the box.

Hi Harrison,

Consider looking for private funds. This is the type of opportunity that works well for some private investors, including retirement plans (self-directed IRA).

It is possible that the existing lender will consider selling the Note. If that possibility exists, there are many private investors that would be willing to buy the note & modify the terms.

Good luck

Marvin, I referred t this as a skinny deal because based on my experience, the % of potential profit is small in relation to the size of the deal.  

I realize that in dollars it seems like a lot of money (if you're new to the game) but I have learned to go in to my deals with a conservative mindset.

While the ARV estimate is $600k to $625k, I would expect to sell at the low end of the range because the house is "market weary" and we are entering the winter season.

I would also expect to invest more into repairs & renovations than $25k because inevitably something else always comes up.

And lastly, when a deal has monthly carrying costs of $3,000 it doesn't take long to drain the profit bucket.

So for me, this is a skinny deal.  I would keep it simple by tying the property up with an option, then I would market it aggressively with the most attractive terms that I can arrange.

If someone takes the deal...great.  If not, I suspect you will at least add to your Buyers list for future deals.

Over the past 33 years, I have had many deals that didn't close but served to introduce me to Buyers & Investors that I went on to do deals with later.

For me, it's a "win" either way. 

The deal is a little "skinny" for an investor but ideal for an Owner Occupant.

I would personally put an option on the property then market it to find an owner occ buyer that has money but no ability to qualify for a mortgage at this time.

I would then assign the option to the buyer, use his money to bring the loan current and to pay my assignment fee. Then I would step aside and let the Seller & Buyer take it from there.

Good Luck,

Desi Arnaz

My suggestion is to consider using the FHA 203K program. this is a program that funds the acquisition & renovations in one loan.

Find a good Loan Officer.  Make sure that he/she has done the program at least a few times in the past.  Their experience will save you a ton of grief.

Good Luck.

Desi Arnaz