All Forum Posts by: Edwin Epperson

Investment Info:

Single-family residence private money loan investment.

Purchase price: $79,900
Sale price: $165,000

We provided a 1st pos. loan to an experienced RE investor in the Panhandle of Florida, because of their experience and loyalty in using use for their funding we provided a 90% purchase loan and a 100% construction loan. They finished their project in 5 months and made $36K+ in Net Profits which put their Cash-On-Cash return over 300% in 5 months! You can read more about this specific loan, and view before and after photos on our Past Funded Deals blog HERE.

What made you interested in investing in this type of deal?

The renovation was generally cosmetic, and the borrower was an experienced investor who had used us multiple times. We value loyalty and personal experience more than anything. We are a relational lender, and we can accomplish this because we make "portfolio" loans, meaning we do not make loans to then be able to sell them on the secondary markets. We hold all our loans from loan app through payoff. You work with Blue Bay Capital only, the entire time.

How did you find this deal and how did you negotiate it?

We looked at the borrower's experience, their loyalty, and what the project entailed. We then made a reasonable offer on the amount of funding and the cost of our capital based on the risk factors that we saw prevalent at the time.

How did you finance this deal?

We financed this deal, by using our Turn-Key Private Lending solution. We submitted this loan opportunity to our Inner Circle and those Capital Investors wishing to participate, became a fractional investor, with other sophisticated investors, all in 1st position. They earned a return that faired way better than their other passive investments as well they shared in the upfront points we charged to our investor.

How did you add value to the deal?

By being able to close quickly (due to prior deals and only underwriting the deal) and we have an easy construction draw process that allows the investor to be reimbursed their construction expenses within 5 business days.

What was the outcome?

The RE Investor sold the property for a great profit, compared to the amount of capital they put into the project and were able to complete another project all within 12 months. That is the power of leveraging professional, private lender capital.

Lessons learned? Challenges?

This was one of those rare projects where the budget estimation was accurate and the timeline to completion was stellar. This only comes with personal construction experience on behalf of the investor and an "eyes-wide-open" approach to estimating a projected renovation budget and timeline.

@Jillian Conklin I think it's great you guys are wanting to get involved more on the investment side than the contract side, even if it is being pushed by you.  There are a few things you should be aware of, and @Greg Scott honed in on one of them.

#1: Whether you go through a bank, Hard Money or even private money (assuming they are actually in the business of lending) you will need to put money down.  ANy lender that will loan to you requires "skin-in-the-game".  The primary ways around this are you find private money (different than private lenders) or you build a long-term relationship with a private lender (ie; completing a LOT of deals) and the PL allows you to do a 100% funded project.  Either way, you will need to have a downpayment.

#2: You will also need to have additional capital for closing costs, and holding costs of carrying the loan and paying for utilities throughout the project.  As well you will want a contingency reserve for "whoops" factors on your project.  Historically its been around 10% of the project costs, however in today's rapidly adjusting materials costs world, it may be wise to set aside 15% as a contingency reserve

#3: There are THREE primary sources of capital in RE Investing - A) Hard Money Lenders "HML" | B) Private Lenders "PL" | C) Private Money "OPM". Each one is unique and different, however, the terms are often skewed, and this is intentionally done. Let's start off with HML.

- Hard Money Lender "HML": Historically HML charged A LOT of points upfront and maxed out the annual rate. HML over the past few decades have become synonymous with "Loan Sharks". This of course does not benefit an HML as far as public perception. After the 08" financial crisis you started to see HML "rebrand themselves as PL. Why? Private lenders historically were an individual who had a boat loan of money and did not know what to do with it. They were your "family" and "friends" as you even mentioned above. So HML realized that by simply shifting the terminology of what they called themselves from one that causes a visceral reaction, to one that makes you think of your rich uncle smoking a pipe on the front porch and handing out all the cheap, abundant cash he has... well they could change the way the public perceives them.

- Private Lender "PL": Historically speaking PL was actually today's definition of private money, I'll cover that in a minute. Now as the HML has begun absorbing this term, it's even more important to discover the difference between a PL and an HML who calls themself a PL. A TRUE PL is someone who lends out their own capital, also called portfolio lending, because they, the PL, keep the Mortgage and Note as part of their personal portfolio. A TRUE PL NORMALLY will not pull credit, or check your tax returns or verify your income. Now with the advent of many vendors in the lending space realizing that there are PL who have a business and need business functionality, you may see a PL actually pull credit and do some of these other checks that historically speaking have only been required by HML. I won't go into why a credit check is so important to investors so that they know what type of lender they are dealing with but it speaks volumes when an investor requests a loan and the "Private Lender" requests a credit score check.

- Private Money (Other Peoples Money) "OPM": You hear this type of capital investor preached from the stage at every REI seminar and event. This is the "Goose that laid the golden egg". These are "Family" and "Friends". Most likely they are not sophisticated in the REI space and they have no idea what questions to ask you to vet the validity of the deal. They truly ar lending NOT based on asset (because they don't even know how to "vet" the asset) they are "lending" based solely on the relationship between them and you. This type of investor is almost always happy to simply beat the market/ ie saving account. And the fact they know you, the better they feel. The problem is that the Gurus have not kept up with the "hostile takeover" of the term PL being acted out by the HML. Therefore these Gurus are teaching their student to go find "Private Lenders". But in reality, a PL is NOT the OPM, instead, the PL is someone running a business, they are sophisticated and they know how to mitigate risks and cover their downside. So many REI students get frustrated when they try reaching out to PL (because that's what their trainer/ teacher taught them to do) thinking that the PL is actually OPM.

Now, why did I go over all of this?  Well twofold, to give you insight for when you are searching for a lender, ensure you know who you're speaking with.  Two borrowing money is not the scary thing that many people think it is.  By, finding the right lender, and having them in your court, it can make getting your first of many projects under contract and closed, easy, smooth, and refreshing.  My suggestion is to find a local PL that is in the business of lending.  Typically a small shop and not a company that has a large national presence.  Then do your research on the PL.  Depending on the state they may or may not need a lic.  Most PLs do not need a license to lend to an entity buying property for investment (business) purposes.  If I can be of any assistance please reach out.  Best wishes and much success!

@Sean Gum I agree with @Robin Simon as well.  12 - 16% earned interest for a PL is typically reserved for short-term investors.  As a private lender based out of Tampa, FL I only lend on 6 month projects.  I may go up to 9 month or 12 month, but in my experience (8yrs+) if a F&F investor cannot get a project done in that amount of time, there are bigger issues at hand.  Also, you have to be able to find deals where the numbers work.  These are VERY high-level numbers you can use as guidelines:

- Purchase Price = < 55% ARV. If your buying a property at a value that is higher than 60% ARV then make sure your renovation requirement is very low as a percentage. For instance, if your purchasing a property that After repairs are complete it would be worth $320K, then the most that you would want to offer is $176K;
- Construction Costs = < 20% of ARV based on a purchase price of 55% ARV.  If your renovation is going to cost more than 20% of ARV then your purchase price needs to be less than 55% ARV.  For instance, if your ARV is $320K then the most you should be putting into renovation should be $64K.  And your purchase price should be no more than $176K in this scenario.
- Closing Costs = 8% +/- This will vary depending on if you are an agent, and if you are having to provide concessions at close.  While concessions have not been necessary in the past 2-3 yrs (speaking of FL specifically)  we are fast approaching a time where concessions will begin becoming necessary to get the price points people think they can get for their property.  Historically you should account for 0.5 - 2% of ARV towards concessions, plus the RE Agents costs standard of 6%.  So if you account for 8% sell closing costs to be paid by you.

Backwards plan... If we were to "back out" all costs associated for a F&F based on an ARV of $320K this is what you get (and these are HARD costs... these do NOT include "soft" costs, which primarily include your acquisitions costs and costs of capital)
- Sell = $320,000
- Sell Costs = $25,600 (8% ARV)
- Renovation Costs = $64,000 (20% ARV)
- Purchase Costs = $176,000 (55% ARV)
- GROSS Profit = $54,400 (17% ARV)

You can see real quick why buying WELL below the 55% ARV is so important. If you calculate soft costs (Property Insurance, Title Insurance, Lender Costs, Lender Holding Costs, Utility Holding Costs, SNAFU Buffer (10%+/- of Reno)) then you can see that the 17% can get eaten up REAL quick. If your not finding deals that work even with 7% rates from a lender, then analyze where you are sourcing your deals from. MLS will not provide the deals that meet these number requirements. Even now deals offered by wholesalers can be hard to find that meet these numbers. The BEST way to source deals is to source your own deals, by getting in front of the actual homeowners and negotiating the purchase for yourself.

Best wishes and much success, if I can be of any help let me know!  Also if you are more interested in becoming a lender then check out my company turn-key private lending solution.

@Lorri McIntyre first off WELCOME TO FLORIDA!  I love my state and it seems many investors (national and international) do as well!  If your looking to get into the fix and flip space then I'd be happy to help.  I lend out my own personal capital, so much few regulatory hurdles to jump through.  And since I'm a portfolio lender I keep my loans on my own books, so I'm not trying to sell them on the secondary market.  I do offer a "Foreign National" program, where they don't check your credit but the DP is going to be a min. of 30% for the acquisition.  Happy to discuss if you would like.  Best wishes and much success.

Thomas, welcome back to the BP community, as well congrats on graduating and earning your RE Lic! I'm a private lender based out of Tampa, but I only lend to SFH (1-4 Units) and may be looking to expand into smaller multi-fam assets 12-15 units or less. If you enjoy a cigar, I head down to Grand Cathedral often, maybe we can grab a stick and a drink and talk shop. best wishes and much success!

@Dan C. I thinks its awesome that you and your family stepped into the private lending side even if for internal purpose.  First and foremost you should consult a CPA, so it's good you're looking for one.  Your CPA should be able to track and account for interest paid etc. One of the forms your parents should provide you is a 1098.  This is a form that banks/lenders (your parents) provide borrowers for interest paid on a property.  The borrower (you) would then submit this 1098 form to their CPA to then file with taxes.  As far as your parents reporting earned interest their CPA would handle that.  One of the "documents" that you will want to generate and have you/ your parents track every month is a Payment schedule.  A great place to find these calculators (all excel based) is Vertex42(dot)com Fill one of those out and you guys can have a document that you can track every month.  This will prevent confusion and miscommunication between you and your parents as far as which months were paid/ to paid and how much interest is still to be paid.  Also if you decide to make a principal payment the calculator can account for that, and adjust interest as well.  Best wishes and much success!

Investment Info:

Single-family residence private money loan investment.

Purchase price: $41,000
Cash invested: $8,000
Sale price: $100,000

This was a perfect example of a B.R.R.R.R. project. The real estate investor bought this home by finding and negotiating the purchase directly with the homeowner. They then quickly renovated the interior, hired a property management company, placed a tenant and refinanced all within 5 months! The net cash flow is $265 on a $100k loan, as well they were able to pull out just over $20K in equity. We provided the purchase and renovation loan as well as the refinance with a 30yr fixed rate loan.

What made you interested in investing in this type of deal?

This was the first project we completed with this particular investor out of Gainesville, FL. They were well qualified for a 30yr fixed rate take-out loan, so the BRRRR method absolutely worked beautifully for them. The investor had a game plan right from the start. They had their property manager lined up, knew the market inside and out, and targeted a renter demographic instead of a homeowner in their approach to the renovation.

How did you find this deal and how did you negotiate it?

This investor was referred to me because of a connection in a local real estate investing club there in Gainesville FL. Personal referrals are the gold standard in this business, and if you treat your clients well they will go above and beyond to help you help them.

How did you finance this deal?

We provided an opportunity for our capital investors to participate in the origination of this loan through our turn-key private lending solution. Not only did they get a great rate for the 5 months we held the Buy and Renovate loan, they were also able to participate in a portion of the upfront points collected. Their annual return was over 10% in this case due to being able to reuse their money at least 2x in one year.

How did you add value to the deal?

By being able to close quickly and streamline our approach to underwriting the investor was able to close faster than the competition and be able to get all the funding needed to purchase and renovate this property.

What was the outcome?

The investor was able to complete the renovation in just over 2 months, retain their property manager, who already had a tenant ready to lease, and we completed the process of refinancing qualification, and close on the 30yr fixed rate loan all in under 5 months! Our client was very happy, our capital investors were very happy and we have been able to do repeat business!

Lessons learned? Challenges?

Having a game plan is so critical. Knowing what parties are helping in what fashion is the key to success. Being able to put together the multiple pieces into a seamless transaction is what separates the casual investor from the professional.

@Priscilla Z. hello from Tampa!  I fund F&F properties as well as Rentals, and there is an agent I know, who I regularly send my investors.  He just bound a vacant builder's risk for 6 months for $193K in coverage for $606.90 in premium.  I know you said you have rentals but he definitely knows how to shop.  Reach out and I'll send you his contact info.

@Michelle Reid hello fellow "Tampa-ite"! There are several really go spots for LTR's (1-4 units specifically) in the central FL area. I highly recommend Lakeland FL. It's where several investors I have funded have purchased/ refinanced 2-4 unit SFH. Lakeland is about 35-45 minutes due East of Tampa and about 45 - 1:15 due West of Orlando. Right along I-4 it has great commute times and purchase prices are still reasonable considering cash flow. You should easily be able to hit the 1.25 - 1.5% rule on your cash flow. North of Tamap is growing very fast as well. North, past Wesley Chapel near the Dade City exits, are booming and there are quite a few 2-4 unit developments happening in the area as well. Best wishes and much success!

@Scott Voytko I have an agent, Justin Sloan with the Nessco Group.  I have a policy not to post contact information on the open web, but if you reach out I'll pass along his info.