All Forum Posts by: Alex G.

@Brad Courtney   The good thing you've got going for you is you're retired - you got time to  spend on it. When you are getting started, one thing you need a lot of is time. Time to learn, time to formulate a game plan and most importantly, time to find and pursue opportunities.  

The other thing you need is a whole lot of energy. I'm in your age bracket and the energy level just isn't the same as when I was in my 30s or 40s. That's the fact of life. The only way to fight it is to take care of your body, exercise, etc. - so you can get the most out of the time you have on your hands. 

 The most valuable skill you can acquire early on in this business is finding great opportunities. 

A typical progression for a new investor with no or very little capital is:
1) Bird-dogging / wholesaling
2) Rehabbing
3) Investing for long term cash flow (that's your final objective from what I understand)

You can start by looking for deals for other investors (bird-dogging). You don't make offers, don't sign contracts, don't take any risks with money or liability -- just identfy the opportunities and pass them on to someone who can take advantage of them. You'll earn small fees. For instance, I pay up to $5,000 for something like that to various folks who might turn up a buying opportunity for me.

 With 5K start up capital you can make offers on propeties at a discount with intent to resale or assign the contract (wholesaling). These kind of activities don't expose you to a lot of risk with money (but some liability on contracts) while still help you learn the art of finding, evaluating and negotiating deals. With a contract to buy a property at a huge discount, you can make from $5K-20K assignment fees... And sometimes quite a bit higher, depending on a size of the deal and how juicy it is. 

Once you build up your capital with the activities above, you can move on to buying, rehabbing and reselling. The checks from rehabbing in these area often start in the 30s and could be as high as 6-figures. 

Rehabbing is the riskiest form of investing in my view, but it builds up capital in large chunks. With more capital at your disposal you are on a path to buy long term cash flowing assets, like rental properties or notes that will supplement your returement income, invest in hard money loans to fund others.  

And since you've gone the full investment circle yourself - you can partner up with people who find opportunities but lack capital and experience that you now possess.

I've been in the industry for 25 years. You happened to be starting in the hottest market we had in my memory.The biggest  challenges of today's Austin market is - really good deals are very hard to find. Everybody is after them, everybody wants a to be in real estate. On a positive side - if you do find one, it's like money in the bank. Somebody will want to pay you for it, you can find partners and/or lenders to fund it. 

With a good opportunity you can also find mentors willing to partner and do a deal with you for a share of profit, or buy it from you and still keep you alongside watching how they run it from start to finish and cash the check on resale. There is no better way to learn but by watching someone else do it in front of you, step by step, from offers, contracts, negotiating, funding/closing, to managing a rehab, and finally to resale. You'll learn this way a lot faster than by reading posts on a forum or taking a class, though you still should pursue those.

Last but not least, join a few local REI meetups and get a feel for what's going on in the market, what other people do, meet hard money lenders , conventional lender and other providers who often sponsor these meetups.

By the way, I'm heading to the Investor Underground this Wed night at 6:30 PM at Abel's North. If you'd like to connect and chat there PM or email me.

Good luck.

Donna Fox with Barton Creek Lending recently did a presentation at one of the local REI Meetups. She is a mortgage broker. She talked about a host of interesting investor oriented programs including HELOC on rentals with up to 75% of appraised value. Other programs had no seasoning competitive rate/term FNMA refi for up to 75% of newly appraised value (up to 10 per spouse), same no seasoning for cash out refi on rental properties purchased for cash, great rates on homestead HELOC for up to 80% of appraised value, and even construction financing including ADUs and refis into 30 year fixed rates upon completion.

I haven't got any funding from her yet, but seriously considering. I did send her a couple of follow up emails and she was pretty responsive, even replied on the  weekend.

@Juan Cordero
A short sale is usually in order when a property is overfinanced, or upside-down. I.e., the loan balance, all payments in arrears, fees, costs, negative escrow or unpaid taxes -- together exceed or are near an "as is" market value of the property.   In Austin metro, especially in Travis county, in our current market situation it isn't a frequent occurance.  

This is because we had an amazing run up in property values here during the last 8 years that nearly insures a good deal of equity after 2-3 years of ownership. An owner would have to put <5% down on a purchase and go into default almost right away to create an upside down situation. 

A more likely scenario is when an owner with equity goes into a lengthy deliquency, then does a Loan Mod where a large arrearage is added to the balance. This reduces the equity  signficantly... Then fails on the repayment plan and goes into default again. 

Either way, these are not very frequent in our present market cycle. For instance, out of 100+ monthly foreclosure auction postings in Travis county, and about 20-25 properties making it to the auction - only 5-10 properties don't sell at the auction because they are overfinanced and don't have enough equity. 

So the opportunities in short sales aren't that many as we speak. This may change once the market slows down or reverses its direction altogether and the equities adjust downward.

I don't believe banks' willingness to approve a short sale has anything to do with them "knowing" the borrower. It's just a simple loss mitigaiton tool. The decisions to approve or not approve one are made  to minimize potential foreclosure costs on the upside down loan.

@Juan Cordero  Over the years I bought a good number of properties in pre-foreclosure situations. As a result I accumulated a fairly extensive body of knowledge about the process from default to the auction.

Foreclosures are governed by the state of Texas laws. There are no laws specific to any county in the state. There may be county specific minor procedures, not laws, as to where the notices are posted in the county (usually on the billboard), at which exit of the courthouse the foreclosure auction takes place, etc. 

You mentioned specifically "banks is Austin" in your question. Is the loan from a small Austin area bank? That would be quite unusual. Most of the loans out there are from large statewide and nationwide lenders, not small local banks. Forebearance was a form of a repayment plan offered by most lenders in times prior to the last mortgage crises of 2007-08. That plan made it very difficult, almost unrealistic for the owner to repay the arrearage. 

With forebearance (a) the lender required a significant down payment towards the balance, usually about 1/3 of all past due amounts, (b) the remaining balance was amortized over a very short term, typically 2-3 years which drove the payment on the arrearage to be signficant (in several hunded dollars a month), (c) the owner would have to make 2 separate payments, one on the regular loan, as usual and the other on the arrearage. 

In a way, it is a repayment arrangement similar to the one offered in bankruptcy proceedings.  This would often push the total debt payment up by 30% and made it impossible for the owner to keep it up. Many owners subsequently defaulted on these forebearance repayment plans.

Post 2008, Obama administration made a big push on creating a lot more affordable repayment plans that allowed the owner roll all their arrearage/delinquency into the total loan balance, and gave the owner a signficantly lower interest rate. I've seen Loan Modification agreements with as as low as 1-2% APR rate. This, in turn, reduced the overall loan payments significantly and created a real relief for the owners who were able to make these lower payments.

The Loan Modification is a current indstry standard for repayment agreements between lenders and borrowers. Typically Loan Mod requires a hardship package from the owner, a qualification process, etc. I'm finding that 10 years removed from the mortgage crises, most lenders are still quite liberal in working with the owners and allowing them to stay in the house and make lower payments IF the owner is cooperating, responding to letter and applying for a Loan Mod. Not sure if there are still some incentives in place from the federal  administration, or lenders just learned that it's cheaper to keep the owners in the houses and paying for as long as they can. 

Outside of Loan Mods, the options of the owner in foreclosure are:

- Bankruptcy (Ch 13 usually puts the owner of the repayment plan like forebearance; Ch 7 takes the property out of owner's hands and puts it into hands of the BK trustee who will sell it to pay the creditors)

- A lawsuit against the lender for wrongful foreclosure or other legal cause 

- A loan from family and friends to bring the loan current

- A loan from their employer 

- A loan from their 401K plan or IRA (usually up to 50% of the balance is accessible and the money is not taxable)

- An emergency withdrawal from their 401K or IRA (they'll have to pay taxes but no penalties)

- A sale of the home to a family member who could supply cash to bring the loan current, with an option to repurchase

- A hard money cash out loan against an investment property or land, assuming they have one with lots of equity

- Sale of the investment property or land to raise cash

- Lastly, a sale of their home to a 3rd party whether through a realtor or via a direct sale to an investor like yours truly.

As always, tread carefully as this is a high liability / litigation prone area. Have owners sign disclosures where you clearly explain your role and intent, any agency relationship (or disclaimer thereof),  and an advice to the owner to seek independant legal and financial counsel.

@Jacob Pereira   I think you had a minor typo there when you spoke about hard money loans. You probably meant a 6-month balloon rather than 6-month amortization.  I  often type a bit too fast for my thinking ;-)   

By the way, I always negotiate a 12-months loan just to be safe, even when I'm counting on turning a deal in 6 months. If you ask, you can get 6 months changed to 1 year upfront nearly every time and avoid paying extension fees on a shorter term loan. 

More importantly, 12% + 4 points is somewhat expensive for this HM market we have in Austin. There are companies and individuals here that offer 12% + 2 points.  If you're paying 4 pts on your deals you might want to look up AJ Shield with Baymount Capital. Feel free to PM me if you like his contacts.  Also I met some private folks at a couple of local meetups who are willing to do the same 12% + 2 pts, or even lower. 

I happen to specialize in these kind of deals.  A few things that aren't clear from your description:  (a) who did the heirs sign away their heirship to, (b) are the heirs the children who want nothing to do with the property, (c) whether the heirs/children are defendants represented by the attorney you called the idiot. 

From what you said about lender's unwillingness to go ahead with foreclosure it sounds like the current payoff is at near market value or even higher. 

As a note holder you can only collect at the foreclosure sale what's owed to you under the note (i.e., what you'd normally send to a borrower as a payoff) plus the trustee fee (the fee owed to the attorney conducting the public sale). Any overage created by bidders going above the amounts owed to you goes to (a) junior lien holders, (b) owner of the property or his heirs when owners are dead, or to the party the heirs signed the property over to prior to the sale.  

For starters, the foreclosure auction route presumes you won pending lawsuit for foreclosure, as you can't really auction the property until after the judge signs of on the foreclosure order. If you do go to the auction sale, you also got to check for state and federal liens though, they are trickier to get rid of.

Since the payoff is already high, in this scenario one way for you to profit from buying the note and foreclosing is to negotiate to buy the note from a lender at a large discount from the current balance and hope the bidding goes above what you paid (you'll profit from the difference). 

You got to keep in mind the bidders at the auction don't pay retail, so you can count on a bid between 65% of value, possibly a bit higher if the property is in a hot county with lots of bidders and not much properties heading to the sale.  Around here in Travis some folks bid as high as 90% of tax appraisal, but not on all properties.

Here is aAnother twist on this IF the balance is near retail. You buy the note from a lender at a large discount, have your tustee bid at full value (near retail). The end result is - nobody bids at the auction because the debt is too high. You end up owing the property, all junior liens are wiped out including all heirship claims (again assuming you have a court foreclosure order signed by the judge). 

My preferred method has always been to make deals with the heirs. This revolves around being able to discover a way to motivate them to act. Again, I am unclear who has an equitable interest now and whether a solution might be reached by offering the attorney representing the owners to drop a foreclosure lawsuit in exchange for a Deed from the heirs affidavits of heirship. Then you may not have to go to the foreclosure auction at all.

Good luck.

@Account Closed 

Full disclosure: I'm not an agent. My wife maintains an agent license to have access to MLS but doesn't represent buyers or sellers, nor is she involved in purchasing investment properties. The MLS is strictly for our investment business use.

I think you have a number of misconceptions throughout the posts you made in this thread. Here are thoughts on them:

1. “50% agent to broker commission” - a Myth.

You are in Texas where we have brokers who offer a whopping $120 annual fee to hang agent's license and $99 per sale commission structure. No real financial bondage there.

2. “Agents and brokers get first dibs on properties and therefore violate their duty to clients” - a Myth.

For starters, the last time I bought a property through MLS was nearly 20 years ago. We buy everything off the market - mostly through our own research, marketing, proactively looking for distress deal opportunities and contacting property owners.

Some of the distress properties we buy I end up selling as is at below market prices by listing them in MLS, a strategy lovingly called "wholetailing" on BP. I always get 6-8 offers for these listings. After several years of doing so I acquired a good bit of data on the type of buyers who compete for these fixer opportunities in our MLS.

In my estimate, about 10% of the offers that come are from wholesale agents and brokers who are trying to get super cheap deals to turn-around and wholesale to their clients. Another 20%-30% come from agents and brokers who want to buy the deal for themselves. The remaining 60-70% come from investors whose agents found the opportunity for them to rehab. I don't see how these numbers indicate that "the public" is under-represented or under-served by brokers and agents.

3. "Make the MLS public, just like travel agents had to deal with Travelocity"
– Unlikely what public really wants.

For starters, Travelocity, Expedia and the likes appeared as a result of market demand and eventually became the industry standard. Ditto for Amazons and EBays of the World. Many industries just don’t lend themselves to this kind of model due to complexity and risks involved.

Comparing a $500 air ticket purchase with a purchase of $100K-$500K piece of real estate is plain silly. High school kids buy air tickets online these days without thinking much about it. Reality - 95% of home buyers won’t be able to navigate through legal issues and liabilities involved in buying or selling a property, fully understand contract language, disclosures, title reports, inspection reports, etc., etc.

More importantly, they don’t care to learn all of that themselves for a purchase that happens 1-3 times in a lifetime. They both desperately need and truly want industry professionals to help them explain and navigate through these murky waters. Plain and simple – general public doesn’t want to take risks and/or make a mistake with hundreds of thousands of dollars on the line. They are not forced to use agents, rather they prefer to employ professionals.

I think one of your misconceptions is assuming that access to more data will solve the problem for buyers and sellers. It's not the data and it's not the inventory of homes that is lacking. There has been some competitors to MLS in play: FSBO.com, ForSalebyOwner.com, Zillow and Trulia who attempted to provide alternative inventory and data sources.

None of them have been able to offer enough to general public to shake the MLS position as the industry standard. Some big providers like Zillow have nearly the same data as MLS, or at least have the ability to get some of the same data. What they lack is the service element MLS offers to the public through its brokerage community.

Even within the brokerage community there is significant variety. For instance, in Texas you have a service called Listing Spark that allows any seller to list a property in MLS for $7/day. On a $300K property a 3% listing agent commission is $9,000. Compare this with a $630 listing fee for 3 months through Listing Spark - one could save nearly all of that $9,000.

However, guess what? Hardly any consumers  ("the public") use it presently because it's just a listing service without any representation. Only investors who have enough confidence to represent themselves are using it.

Bottom line – for John Q Public the best way to sell a property is still sticking it in MLS and having agent representation. And consumer's favorite way to buy a property is still doing some upfront online research on realtor.com or the likes, calling a real estate agent, providing him a criteria and touring with an agent to view the houses. This isn't going to change via a public policy. Only by creating a better alternative to buy and sell properties. I don't see one in sight yet.

Then there are items ##3-6 on your list.

#3. “Install hourly pay to agents and kill commission as a % of sales price. “

Out of every 10 people who use agents to show them houses for sale there may be only 2-4 actually buying. The rest either postpone a purchase or are just lookers. Make general public pay hourly for going to look at houses and for the upfront research the agents do on their behalf - and you will likely significantly dampen the market if not kill it altogether.

#4 & #5 on your list are pure discrimination.

The right to buy and own real property is one of the very fundamental rights in this country. You can’t take it away from anyone, whether licensed or not. As far as industry abusers, every state has a regulatory board or commission that oversees practices of licensed agents and brokers. They have procedures to review complaints against them, fine violators and even revoke licenses. For bigger abusers there are AGs too.

#6. “Require the real estate industry to provide to the public the same sales contract and leasing templates as used by realtors.”

These contracts have been developed, modified and are continuously updated based on changes in the law and litigation cases in real estate industry. That ongoing legal work is being done by lawyers on payroll of various boards of realtors or associations of realtors for the use by realtors and their clients. Given the number of various contracts, forms, and other documents available to realtors – it’s an enormous body of legal work done at a significant ongoing cost.

Mandating that contracts developed by various associations of realtors, i.e., funded by realtor’s dues, are to be passed to the general public is out of the question.

On the other hand TREC (Texas Real Estate Commission), our state’s real estate industry regulatory organ, is funded with public money. They do have lawyers who work on contracts. They do provide a substantial number (30+) of contracts and forms you can get from their website and use for your personal real estate transactions without having to go to a real estate agent. In fact, the main 1-4 Family Purchase and Sale Agreement used by all realtors in the state of Texas is developed and updated by TREC, and it’s free for the public to use. Here is the link to their contract page:
https://www.trec.texas.gov/agency-information/form...

In closing…

Based on some other posts you made in the Austin Real Estate Forum on BP, it appears you might be having a tough time to get going with your investing career. Perhaps, that’s what makes you feel like the odds are stacked up against you, the industry is flawed and needs to be changed.

My advice – look up Jim Rohn’s lectures on YouTube and listen through a few of them. He is an old-timer from the 80s who talks at length about the “system”, the status quo in metaphoric terms. The system doesn’t change, the system is ALL we have to work with. We all have the same basics to work with - 4 seasons in a year, 12 months, 7 days a week, day and night.

No system is perfect. Neither is real estate industry – but it is ALL you got to work with. If you don’t like it, you might try another industry. It’s not that flawed as to stop you or anyone else from succeeding in it. It isn’t easy to break into, especially when the market is actively growing. Everybody wants a piece of that growth and profits.

It’s working on your personal skills to make use of the system is what makes people successful. In our industry you have to learn to navigate trends in the local market, laws, set of strategies to work the market to create profits, address capital requirements, cash flow, etc. Investors who are successful today, whether licensed or not, have put in the time, work and paid their dues. Yes, you too can join them.

Caveat - they haven’t come up with shortcuts for perfecting one’s skills yet. It takes time, patience, persistence and a lot of work. The clarity and confidence to act usually come after you put in that time. 

I'm am with @Jason Carter  as far as joining the groups  mentioned above and getting referrals. However, a word of caution. I'd only take a referral from other people during live meetings where I could ascertain they're genuine investors who used the service provider they recommend. I discovered there is a fair amount of abuse in online referrals, both on forums and via email. 

One format is where family members constantly refer their kin without proper disclosures and without it being too obvious. The referal could be  from Mary Smith to ABC Construction while John Smith, Mary's husband or brother, is behind the company. No problem with that when disclosed but more often than not it just looks like another investor endorses a contractor. 

Worse yet, I've now seen a few people on forums and over emails repeatedly refer certain contractors or trades in exchange for a cut of the business. Yes, there are "finder fees" in contracting business too. As you can imagine on a large forum with lots of investors looking for help with remodeling and repairs this could be quite lucrative. 

Even if it is a legitimate referral still proceeds with caution. Do your own due dilligence, call several past customers and get more specific info on what type of work the provider did for these parties. Perhaps even go and look at the worksites. Suppose you're planning to hire a GC and your referral source recommends someone. However, they just used that party for a paint job or to swap out some light fixtures. This doesn't mean the provider has the skills, subs and bandwith to manage a large remodeling job.  

I also found that some of the smaller contractors who did one trade for a while suddenly announce themselves to the investor Universe as having capacity to do a lot of other trades. This usually isn't a good thing. They will be referring other trades and getting  sizeable referral fees, while not really able to manage those trades and not verifying or guaranteeing the quality. 

Unfortunately, these things tend to fester in an environment like we have now:   markets on upswing, lots of demand for contractor services from both investors and home owners who are getting ready to sell their properties. 

@Peter Schaub I looked again at your original post. In the beginning you said, "I'm looking to get into flips", which implies you haven't done any. Later in the same paragraph you say, "I can find, manage, and sell a flip from start to finish, but I lack the capital to do it myself".

Here is a thought. It takes at least 3-4 flips to cut your teeth on them. While you complete them you gain a decent understanding of the process, find reliable subs or GCs, work out the kinks in your approach, get a good grip on your numbers, learn to develop a thorough scope of work for your workmen and a good set of contracts for GC or subs, etc., etc. 

Where you are right now  isn't the time to be looking for equity partners who as you put it "lack time or skill".  You will likely lose their money and potentially destroy relationships that could serve you well in the future, after you gain that valuable initial series of experiences. 

There are couple of options to raise capital for deals you do have that may not hurt people who don't know better than to invest with you.

1. Hard Money Lenders. 

There are local HMLs who will loan you 100% of both purchase money, rehab money and even points and fees, AS LONG AS you find a super deal. I.e., your project cost (purchase price + rehab + fees) must be low, low, low -- below 60% of the ARV.

This 60% cost/ARV ratio is enough assurance for some HMLs to give you all the funds you need to do a deal, i.e., purchase money initially and a rehab budget in escrow to be released as you go along with remodeling. Since you're working for a wholesale company, you're in a unique position to be able to find those kind of properties. 

And if you screw up on your first few projects - it's the HML problem, not yours (well, to a degree). These companies and/or individuals are set up to put their money into high risk projects. They do know what they're doing and usually protect themselves agaist the risks of lending money to inexperienced folks like you. If they don't - it's their fault.

If they don't want to loan you the money it usually means your deal isn't safe enough, i.e., the LTV isn't low enough. 60% LTV all-in money is relatively easy. Look up my recent (Feb 2017) Ad in the Marketplace. I got a HML for $180K for a rehab project, and it's not even a 1st but a 2nd mortgage security. My LTV is 60% on the "as is" value and getting lower by the day as I put in more improvements.

2. Earn the equity and do the deal with your own money.

You're only missing $30-40K. You're a wholesaler, so use your skills to get the money you need. In Austin with the prices where they are and the market as active as it is now, you can make $10-20K on a single wholesale deal.  

Heck, I'd pay $10-20K finder fee today for a great deal. I have a few guys who call me with LEADS, not even signed contracts, and they would get paid $10-20K if I close on the purchase. But to earn that kind of fees it'd have to be a truly great deal. Trust me, I know. The company you worked for, or rather their backer Aslan Residential fund, bought a number of "as is" fixer properties from me  a few years ago, when they were actively rehabbing here in Austin. I had to grind it out to find those kind of off-market deals that I could resell at a big profit... But that's what you do as a wholesaler, don't you?


To sum this up: (a) Either find a super-deal that's so darn cheap, it's safe for any HML to fund, or (b) Apply your trade as a wholesaler and earn that down payment you think you need to do a deal, and you won't need equity partners.

Once you do cut your teeth and get your rehab experiences under the belt finding equity partners and even HMLs at lower margins shall be a lot easier.  

You can put my name on that list of Austin cash buyers. I m always looking for SFRs & 2-4 units to rehab and  RV Parks to hold. 

Contact info is in my profile.