All Forum Posts by: George Krajacic

Hi Daniel,

You got excellent advice already, however I would suggest to you to attend at least 10 different Investment Clubs meetings in your city. You will meet people with similar interest that are willing to share and put you on the right path. After attending 10 meetings you might be confident enough to start making loans. However, if you are still not confident enough then you can partner with experienced hard money lender and learn what you need to know. The partnership might be set up where you get all the interest on your portion of your funds and HML gets all the points but he is obligated to teach you the process. Remember, even when you learn all the technicality of making the loans you have to also know the real estate that you will be making loans on. You have to know the value of the property in question and how much money it will take to fix it up. Only then can you decide how much money you can safely lend on the property and still have reasonable safety cushion.

Good luck,

George Krajacic

If you are brand new in RE business, for the first 3 to 6 months I would concentrate on learning as much as possible about a business. That you can accomplish by going to REI meetings and attending their seminars and/or by buying and reading 4 or 5 good books. By first educating yourself you will find out that getting money is not hard part of the business but finding a good deal is. Once you are able to find a good deals money will find you!

Good luck, 

George

It is also good point to remember that high interest rates hurts you more in the long term loans, while high points hurts you more in the short term loan. For an example, if you are flipping a property and you are going to need money only for 6 months; you rather pay higher interest than high points.

e.g. - $100,000 loan for 6 months at following rates:

a. 12% plus 3 points. Total cost-$6,000+$3,000=$9,000

b. 15% plus 1point. Total Cost-$7,500+$1,000=$8,500

In the longer term loans opposite is true.

e.g. - $100,000 loan for 5 years at following rates:

a. 10% plus 1 points. Total cost-$50,000+$1,000=$51,000

b. 8% plus 5points. Total cost-$40,000+$5,000=$45,000

Interest rate and the amount of points are used only for demonstrating purposes.

Good luck,

George

Hi Tuan,

I think I understand your dilemma. I’ll try to provide some more clarification and hopefully some good answers for your questions.

It's important to know that you won't likely find a lender or investor to give you a proof of funds letter based on trust/a built relationship. But just because you couldn't get POF "instantly", doesn't mean you can't get one in a very short turn around adequately for your seller's needs. But do start talking with lenders before you start looking for properties. It's important to know their terms, costs, and requirements to make the important project analysis.

A private / hard money lender doesn’t need to see a contract first (if that’s what you mean by deal) most of the time. They need to have enough figures to be able to analyze if the proposed deal makes sense. You should already know these numbers if you’ve calculated the maximum amount you could pay for the house and still make a profit.

It’s important to be able to be able to analyze a property like a lender does for two reasons. First, you won’t be in the rehab/flip business if you can’t accurately calculate all your costs to determine your optimistic and pessimistic profit projections. Second, it will help you be relatively certain that the lender will fund the project.

When you analyze a potential flip you must have certain information to decide what offer you are going to make. First, you need to determine After Repair Value (ARV). Then, you have to know how much you going to spend on repair and the time it will take to complete a job. Finally, you have to know what you are going to pay for financing. Only with above information can you determine what is the maximum price you would be willing to pay for the property in order to make acceptable profit.

You can plug the above numbers into a flip calculator. There are many available on the web and here at biggerpockets or I have one available on my website that lets you compare scenarios side by side.

It doesn't take long to analyze a project once you have some practice. Many lenders, including myself, could turn around a POF letter within a day. When you develop a relationship with a private or hard money lender and you are knowledgeable at analyzing deals, I'm sure they would be happy to provide the letter quickly, especially when they know you aren't bringing them a bunch of duds!

Good luck on your projects,

George Krajacic, Cornerstone Company

Analyzing your figures shows that you already minimized the risk for investor by spending additional $20,000 on repairs. Consequently you only need to borrow about $30,000. It is excellent LTV which minimizes the risk for a lender. Also I would borrow more money than what you think you need just to cover any contingencies and not lose any time by potentially running out of funds. It is much easier to borrow more money up front than to go to a lender second time for more money.

Now the question of what return you should offer to a lender, you already got a good suggestion “ask a lenders”. I would suggest being fair and offering market rates or little more so you can attract needed investors. Plus or minus two percent will not significantly affect your bottom line.

Looks like you have excelent project.

Good luck,

George

@Scott Trench,  Okay, understood that it wasn't a link.  Free membership contributors are still contributing to the content and value of BiggerPockets.  It is an incentive to such contributors to get a signature in forums like this on the internet.  

I've spent hours helping beginners and people with questions for such consideration as the signature on BiggerPockets. The "policy" will hurt the quality of responses to posters.  There's less incentive to spend the time to do so.  

I'm appealing to BiggerPockets to reconsider the policy for this reason.  Consider the quality loss of answers in the forum, not just "the money" forcing people to upgrade.  There is value in higher quality responses and a signature is a sort of payment to the people that do so. 

I would like to address Bigger Pockets and the community regarding the Basic Text Signature feature removal from the free account. 

As a Real Estate professional for over 30 years, I enjoy helping beginners and people with questions about real estate investing.  But, writing and researching a response takes time and energy.  Removing the basic text signature is very disappointing to professionals like myself who have been contributing to members' questions in exchange for a backlink to our websites.  Now, all the work I've done, my basic website signature links have been removed. 

BiggerPockets, Please reconsider allowing some sort of basic signature for free memberships. We are working hard to help answer questions on the site. Allowing for a website link in a fundamental incentive to contributors that is standard across forums on the internet.

I understand there will still be some abuses.  Allow them to be "flaggged".  Continue to reward the good content professionals helping make this a strong community with a basic text signature. 

Warm regards, 

George Krajacic

@Mindy Thanks. I'm disappointed in this change.  It is an incentive for professionals to contribute to the content of this site by getting a text signature in exchange. I suppose your community is large enough now this incentive can be taken away. Please reconsider potentially allowing a name and a website link.  

Thanks, 

George

Hi Ian,

People that are willing to lend their money to a complete stranger are usually sophisticated enough to know that they can get 6%, 9%, 10% or more by lending thru HMLs. If you have a property that you could get conventional loan on for 30 years I would sure take a time to get it because most private loans are for much shorter terms. I might have a source for so please call me.

George 

Investment returns are the measure of amount of risk investor is taking. Lower the risk lower are returns. If the investor does not want any risk, he can buy 18 months CD and get about 1.5% return. If investor is more sophisticated he can invest in 1st trust deeds at 65% LTV and earn 6% to 8%. To earn 10% to 15% one must definitely be willing to take on more risk. In my case I can make 75% to 80% LTV loans on fixers with reasonable risk level, because if the flipper fails I know how to solve the problems and get all investment money back. Your investors' risk also depends on their capabilities and on how well the property was purchased. I am sure you heard the statement that the money is made on the purchase and not on the sale. So to evaluate investors' risk and how much you should pay for their funds depend greatly on how solid is your investment. So if you do not mind please share the following:

Purchase price for the 4-plex including all carrying cost

Amount needed to fix up the property

Projected time to finish and rent the 4-plex

Projected rents

Projected sale price

Projected net profit

With above information as the starting point BP members will be able to tell you if they would invest in the project and how much they would charge. This will help you to make a right decision and attract investors. Also, I like to point out that I did not try to imply anything about you or your project but as a lender I always analyze for worst case scenario.

Good luck with you project,

George