All Forum Posts by: Jeff Caravalho

Hi BP, I'm being offered this note secured by a deed of trust for the following:

Duplex:

Side 1: 4x2

Side 2: 2x1

Sqft: 1,578

Total beds 6, total baths 3

Total Monthly rental income: $2,100

Deal Details

Loan Request:

The investor has a portfolio of properties. He is pulling money out of this one to fix up three of his other properties to sell on the market to retail buyers. He expects to have his other properties remodeled and sold by the end of next Spring (May 2017). The loan should be paid back between June and July 2017).  He will use the 3 rehabbed properties and others to 1031 into apartment or commercial.  I asked why not just go to traditional lender, they said this:

"As I'm sure you know, four mortgages from traditional institutions has become a glass ceiling (this includes a person's personal home). Fannie Mae did up the limit to 10, but it is nearly impossible to find a bank that will do more unless you do a portfolio loan. With a portfolio loan, then the bank would go up to about 60% of value for 5+ properties.

So if an investor has 4 properties financed, owns others outright, financially it is cheaper to take out a high interest rate loan on one for a short amount of time than go through all the hopes of doing a larger loan. And it allows the investor to keep all their houses as separate projects and not bundled. Most investors would take the 4% all day if it were possible. A portfolio loan would cost a couple points and only go as low as 6.5%, plus it would be amortized so payments would be higher than an interest only. And these types of loans take 2-3 months to do. It's good for a long term strategy, but not short term."

Things I found out about property:

1.  There are 18K in liens, mostly taxes.  Blamed it on property manager, who he fired.  They want to use some of 80K to clear property title. My 80k would  be 1st an only lien, property is free and clear other than liens.

2.  Lot is shown as zoned R-1 on county web site.  Garage has been converted, looks like they added 2/1 in garage, county site shows garage conversion.

My buddy is telling me beware, but LTV is great and it's secured by deed of trust w/ power of sale.

It almost seems to good to be true, and we all know what that means...

I understand this would have to go thru a broker because of usurious rate (12%)

This would be reviewed by my RE attorney, before any signing...

Thx for your thoughts

Sorry guys its Canton, not Dayton.  Home of the NFL Hall of Fame, how could I forget!

Great advice though, I did think about zoning.  And a separate exit is a must.  But I think you may be right, it may be better to just look for a duplex that pencils.

I'm going to talk to a local realtor/ investor and see what she has to say.

Thanks! 

HI BP,  I anyone buying properties with basements and turning them into duplexes with an upper unit & lower unit?  I'm thinking of partnering with my cousin in Dayton, Ohio and there are a lot of houses with basements.  I was thinking of turning the basements into 2nd units.  I was wondering how you are going about doing that and if you could elaborate on some of the pros & cons of going this route.  Thanks!

Hi BP,  Does anyone out there have experience in the Canton area of Ohio.  I have relatives who live there and want me to invest out there.  They want me to visit more (can you say Hall of fame game!).  My sister and I are looking to invest in fly over country since the coasts are crazy.  One of Brandon's ideas for investing out of state is to invest near relatives and I think that's a great idea.  Any info. on the local job market, city planning or growth in the area would be helpful too.  Thanks!

@ Jack Baczek I agree with @ Edward B., the SD IRA (in my case solo401) is a great tool & could be a valuable part of someones "multiple streams of income". I'm planning on using some of mine to invest in performing mortgage notes with a term longer than a year to avoid short term cap gains, everything will be reinvested & compounded. The other half of my IRA will stay in conventional investments (mutual funds). Also, planning to use BRRR strategy outside IRA so I can self manage (at least initially), more hands on, tax benefits, etc. So basically, it's lending inside the IRA and buy & hold (maybe flip) outside the IRA. Best of luck to you!

@Dmitriy Fomichenko What is the primary purpose of a custodian?  Aren't they there to make sure investments are legal?  Would it be wise to try to avoid one if you are new to note investing?

@Yoochul C. PLanning on doing notes inside IRA or 401K for now, then invest using BRRR strategy out side of retirement plans once the market corrects...then down the line, 1031 up.

Thanks guys, @Darren Eady I may be messaging you soon for further info. on your notes. Thx.

@Jay Raught, yes that would be the whole payment. Can you elaborate on why you use an LLC for non performing notes but no LLC for performing? Thx.

@Darren Eady, So if I do only one or 2 notes w/ terms longer than a year (to avoid the cap gain), it would be beneficial not to go the LLC route? Thx.

Hi BP,

2 part question: 1. Can I start an SD IRA (or solo4 401K) without forming an LLC (fees would destroy ROI). I am looking to invest in performing mortgage notes that are passive (no trading, note terms longer than a year & someone else finds the borrower). I would like the interest from the notes to be deposited directly back into the IRA. I'm assuming "checkbook control" is not critical in this investing scenario, correct me if I'm wrong.

2. What would be the best IRA setup for this passive investing scenario? SD IRA or solo401K? I'm self-employed so either would work.

3. Would you use your SEP IRA or Roth IRA to start out?

@Darren Eady & @Dmitriy Fomichenko, I would appreciate your input on these, thx.

@Joe Bertolino Are you using using the BRRR strategy as your primary strategy here & if so do you plan to keep these forever, or 1031 up? Also, are you going with 15 or 30 yr loans? Thx