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All Forum Posts by: Jeff Cichocki

Jeff Cichocki has started 26 posts and replied 280 times.

Post: Buying house with cash vs using loan (here me out)

Jeff Cichocki
Posted
  • Lender
  • All 50 States
  • Posts 393
  • Votes 248

@Nick Cooper,

Everyone else's comments are correct. There's really not much benefit financially to paying cash and then refinancing. It very well may end up costing you more.

But, here's a question no one else has asked... What if you can't refinance the way you think you can? If you go to refinance and there is no loan in place, it's a cash-out refi. The rules are very different in those scenarios. There are seasoning requirements, liquid asset requirements, cash flow requirements, credit score requirements, etc. 

Here's a few questions about your parent... What if something in your life changes before you get to refi? How will that affect your parents? How long are your parents willing to lend you the money? Do they need it back by a certain time? What if you don't meet that timeline?

Borrowing from family & friends is great. But few actually think about the consequences of what will happen if/when something goes wrong. I've yet to meet an investor who will answer more than 0 to the following question...

How many investors (including yourself) do you know of or have heard of that have gone out, negotiated what they believe to be the deal of a lifetime, get it under contract, escrow open, deposits made, contractors lined up and chomping at the bit to get started and drool running down their chins who went home to tell their significant other that they can't wait to lose a ton of money in that deal?

The question is a very real question (albeit a bit sarcastic). Borrowers/investors rarely ever ask themselves any questions remotely close to this. Why, because every single one of us thinks that every deal we want to by is a good deal. That's why we want to buy it. Except, things happen. Deals go bad. Deals have hiccups. Unexpected things happen all the time.

So... the real question is... Do your parents understand the real risks or are they just offering to help because you are their kid?

Before you make a decision as to which way to go, you should have a deep meaningful financial discussion with them about the risks. If they still agree to do the deal with you, then go for whatever works best financially for both you and them.

Good luck!

Post: Seller financing when buying with a solo 401k

Jeff Cichocki
Posted
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  • All 50 States
  • Posts 393
  • Votes 248

@Christa S Rickard,

Absolutely no rules against you buying the property in your Solo and having the property with a loan against it.

The only thing I would caution is to buy the property in an llc that your solo owns. The reason being one of liability. If you own properties directly in any retirement account, if you get sued and lose, they have direct access to your account. Not a good thing. Use normal asset protection strategies with good insurance and you should be fine.

Good luck!

Post: Hard money loans- weighing options

Jeff Cichocki
Posted
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  • All 50 States
  • Posts 393
  • Votes 248

@Nathan Realph,

Here's a few thoughts on things to look for in a lender...

Using a HML or PML to acquire good properties that need renovation is a great way to leverage your resources. Using leverage (properly) will accelerate your goals and create opportunities you won't be able to pull off on your own easily. I help a lot of borrowers with this exact strategy. It works great.

1. Find someone who wants you to succeed. All lenders want you to succeed, but what do they do to help you succeed. This is a hard one to test, but referrals are big indicator. Having a low foreclosure rate is a big indicator.

2. Find someone who thinks of themselves as your financial partner and not just a lender. If they act like a partner, they will be a great resource, guide and mentor to have on your team.

3. Find someone who is active in the market (doesn't have to be your market). A lender who understands the day to day struggles of investing can be an invaluable member of your team. They will have a perspective that few others will.

4. Find someone who will be there to help in the event anything goes sideways. Remember, they are your financial partner. Even though they don't own the property, treat them as if they did. You'll understand why when your first property goes a little off kilter and they help you fix the problem.

5. Find someone that is going to be fair & reasonable with you. Some lenders have very high fixed costs. Most of it's junk fees. Yes they need to make a profit. But, if the fees get too high, it's more likely you'll lose the property if anything goes sideways. You want to work with someone who wants to work with you long term. High fees are a good indicator of short sighted thinking; they are not long term relationship driven.

Good luck. I hope this helps you get a clearer picture of how to find the best one for you.

Post: Starting out in Chapel Hill, NC

Jeff Cichocki
Posted
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  • All 50 States
  • Posts 393
  • Votes 248

@Weston Tracey,

Congratulations for only being 25 and thinking ahead this way. It's really impressive.

I know I'm tainted in favor of option 3, but it's not just because I'm a lender. My business partner and I are active investors as well. Option 3 has the most flexibility and opportunity in it.

Using a HML or PML to acquire good properties that need renovation is a great way to leverage your resources. Using leverage (properly) will accelerate your goals and create opportunities you won't be able to pull off on your own easily. I help a lot of borrowers with this exact strategy. It works great.

Here's a couple of pointers/thoughts on finding a good lender to work with...

1. Find someone who wants you to succeed. All lenders want you to succeed, but what do they do to help you succeed. This is a hard one to test, but referrals are big indicator. Having a low foreclosure rate is a big indicator.

2. Find someone who thinks of themselves as your financial partner and not just a lender. If they act like a partner, they will be a great resource, guide and mentor to have on your team.

3. Find someone who is active in the market (doesn't have to be your market). A lender who understands the day to day struggles of investing can be an invaluable member of your team. They will have a perspective that few others will.

4. Find someone who will be there to help in the event anything goes sideways. Remember, they are your financial partner. Even though they don't own the property, treat them as if they did. You'll understand why when your first property goes a little off kilter and they help you fix the problem.

5. Find someone that is going to be fair & reasonable with you. Some lenders have very high fixed costs. Most of it's junk fees. Yes they need to make a profit. But, if the fees get too high, it's more likely you'll lose the property if anything goes sideways. You want to work with someone who wants to work with you long term. High fees are a good indicator of short sighted thinking; they are not long term relationship driven.

Good luck. I hope this helps you get started sooner than later.

Post: Petersburg, VA: Where to Start?

Jeff Cichocki
Posted
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  • All 50 States
  • Posts 393
  • Votes 248

If you're looking for turn-key properties, You shouldn't need HM at all. You should be able to qualify for with either bank financing or alternative funding options.

RVA is a good solid market. I've got two really good friends who you may want to contact to buy properties. 

The first is Ron Phillips. His company provides properties all over the country. I think he did over 800 last year. Here's his FB profile if you want to reach out to him. He's really an amazing guy. You won't regret talking to him. https://www.facebook.com/ron.phillips.3110

The second is Moe Matthews. He is in the RVA market. Another amazing guy you'll love to talk to talk to. Here's his FB profile in case you want to reach out to him as well. https://www.facebook.com/mathewsmoe

I don't get anything for the referral. These are just really amazing guys that do amazing things with real estate. Feel free to let them know I sent you. It'll help break the ice.

Good luck.

Post: Commercial or residential ?

Jeff Cichocki
Posted
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  • All 50 States
  • Posts 393
  • Votes 248

@Anthony Jones

Every single strategy that works for houses works for big multi's and commercial. The problem isn't one of strategy, it's one of management. 

The property that is 8-10 hours away... How easy will it be for you manage from that distance? Does it need any reno? How hard will that be to manage from that far away? Do you have a lot of experience in managing crews? Remotely?

Not all good deals are good deals for you if they're complicated or difficult to manage.

Just my 2 cents worth.

Good luck.

Post: Deal Structuring With Additional Collateral Property

Jeff Cichocki
Posted
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  • All 50 States
  • Posts 393
  • Votes 248

Hi Adam,

I appreciate your giving more detail into your situation. Based on some addition "miscommunication" in your most recent response, I have to say, this isn't as much of an issue of Hard vs Private money. When you use words like "Ridiculous Rates", you are being very derogatory towards lenders. I have to believe your negative attitude comes out when you tlo potential lenders. And, I'm actually a little surprised you're not getting a lot more backlash here too.

You are welcome to stay away from Hard Money (which I realize you said you don't want to talk about any more - I imagine it's because you realize how wrong you are and don't want to get beat up for it). It's your right. It's also your right to think we are all scum (you didn't say that - I just get that feeling). 

The point you are missing is that ridiculous rates are all relative to the project. As a business owner, you should be looking for the best solution to the problem. Sometimes that will be private money and other times it will be hard money. If you completely ignore one of the two tools available to you, you will likely miss out on a lot of opportunity. 

To me, this is a mental/attitude issue for you. You've formed an opinion and you refuse to consider that you're wrong. That's OK. But don't go around bashing on others because you don't agree with them or you think they're too expensive. As you grow, you're going to find that there are private lenders who have ridiculous rates as well (maybe you already have and that's part of why you're not finding what you want). Why are the rates higher, because your dealing with people who truly understand the risk. Unfortunately, it sounds like you're only considering your side of the equation and only thinking about how much money you're going to make. A good lender is your financial partner in the deal and they should have a right to make a profit as well. It's unfortunate that you think you should be able to control that (by telling us we're too expensive, you are trying to limit our ability to fairly charge rates and fees based on the real risk - not just your version of it).

As to your question about private lenders...

It doesn't matter what kind of lender you want. If you can't find someone who is willing to lend you money despite your willingness to pledge the other properties, this should be a huge red flag for you. 

I'm guessing that it's one of three issues...

1. Your project is a lot higher risk than you are giving it credit for being. 

2. Your negative attitude towards rates you feel are too expensive is bleeding through into your conversation.

3. How you're presenting the deal is massively flawed. You're either making the deal all about you and why they should give you the money or the offer you're making is at a ridiculously low interest rate. Sorry. The blade swings both ways.

If you want someone to lend you money, you need to flexible and negotiate. Negotiation is not the art of you getting the best/cheapest rates for the loan. Really good negotiation is finding out what the other person wants and giving it to them in a way that still works for you. Negotiation is just the fancy sales word for compromise. 

The thing you have to keep in mind, if you are going to deal with a private lender, is that the most important question they have when lending money is... How will I get paid back? It's not how much they're going to make. And, it's not about how much you're going to make. 

Assuming that you're right and the project is a good one and the collateral you offer is good, then it's you. It's the only thing left. You have to show them why it's good for them. In other words, it's all about them; not you. Figure out how to be a better salesperson. Figure out what the lenders want. Don't make the deal about you at all. You need to show people why it's a good deal for THEM. If it's not, you're dead. Other than your ability to get the job done, your profit and your success don't really matter that much. However, your attitudes and perceptions do. Your private lenders can feel them. If they bleed into the conversation, you're dead in the water. You have to give them a reason to want to know, like & trust you. Based on how you wrote your original post and your response, you need to work on your presentation skills. Your word choice is very abrasive and off putting. It's easier to attract bees with honey than a hammer.

Understand, my comments aren't meant to beat you up. They're meant to point out some things that I think will help you. Some of the things (based on how you come across in your posts) that need improvement are in your attitude and presentation. They're hard to hear sometimes. But, we all have trouble with this sometimes. We all need to be reminded that it's not about us.

Zig Ziglar said it best... "You can have everything in life you want, if you will just help other people get what they want."

This is the crux of all private money (and hard money too).

I truly wish you the best of luck. I hope you're able to take the constructive criticism and use it to better yourself and your offer.

Good luck.

Post: When to sell a rental?

Jeff Cichocki
Posted
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  • All 50 States
  • Posts 393
  • Votes 248

@Mark L.,

All great questions. Unfortunately, none of us will be able to answer them for you. One thing I can offer though regarding the Tax/1031 Implications though...

If you have more than $500k in equity that you want to get at, it is possible to to structure the sale of the property (you can combine properties together in the sale to meet the $500k minimum) where you would be able to get approximately 95% of the cash out and not have to pay any of the taxes for 30 years (yes this is 100% legal and the IRS approves of it). It is a very unknown strategy. The big guys have been using it for a very long time (25+ years).

You should consider this as an option as you try to figure out your best course of action.

Post: Credit Partnership for a Flip Deal

Jeff Cichocki
Posted
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  • Posts 393
  • Votes 248

@Gardy Saturne, The only downside to this is... What if it doesn't go as planned? What if he can't refi you out? What if he tries to fire sale the property at a loss? Do you share in that loss?

The upside looks good. Just makes sure the downside is covered as well.

Post: Deal Structuring With Additional Collateral Property

Jeff Cichocki
Posted
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  • All 50 States
  • Posts 393
  • Votes 248

@Adam Dylik,

Here's the problem as I see it...

(this is going to start out a little harsh)

You got into a bad deal and got burned. You lost the property because of it and now have a bad taste in your mouth. But, who's fault was it? Your's or the lenders. What did the lender do wrong? Did they delay construction? Did they cause the project to go over the scheduled timeline? Are they the ones that didn't hold up their end of the agreement? I doubt it. The agreement is almost always, the lender gives you money and you get the project done and sold or refinanced based on an agreed upon timeline. Based on your own comments, it sounds like you didn't hold up your end and either get it sold or refinanced on time. Are you blaming the right person?

I'm sorry if that's a tough and pointed question, but here's the reason I stated it that way...

How many real estate investors have you met or heard of who went out, found a property that they believed was a great deal, got it under contract and ran home excited to tell their significant other that they just couldn't wait to lose their butt on it?

Doesn't happen. No one will ever do or say that. All Lenders (including banks) ask that very question of every deal they consider. Why, because the borrowers don't ever think that anything will ever go wrong. Yet, things do. A lenders primary concern in every deal they fund is "how will I get paid back?" It's not how much money will I make. Lending money on investment properties carries a lot higher risk than people think. That's why the fees and interest rates are higher. Doubt me? Why don't banks offer these types of loans? Because they are risky. Look what happened back in 2008. Banks went out of business for doing risky loans. They may become dumb enough to do it again, but not any time soon.

My business partner and I have lost money in deals before. Why, because we were wrong. It was our fault. We didn't manage the contractors properly. Other things got in the way of us doing what we needed to do. But, we never let it get so bad that the lender had to foreclose. We sold the property for a loss to make sure that the lender was taken care of. Why, because our reputation if more valuable that the money we lost. Bottom line is, it was our fault and we shouldn't have gotten into the deal.

Hard Money serves a purpose. A significant one at that. We offer funding to people and properties that don't fit the conventional model because they are riskier. HM is not for suckers. It's for people who have a good deal but don't qualify for traditional financing. HM is for people who can get the job done according to agreement that was made between the borrower and the lender. When they do their part, they make money. HM is a tool. Use the tool wrong, and you'll hit your thumb (like a hammer does when you miss the nail). When the borrower fails, the lender is forced to take the property back. It's the only way for them to get their money back. It's not the lenders fault. It's the borrowers.

For you to blame them for your failure, shows a flaw in your understanding of how it works. It shows that you don't stand behind your promises and commitments. Knowing that about you makes you an even higher risk borrower. But don't worry; your attitude towards HM is fixable. It'll just take some education on your part. Keep coming back to the forums and asking questions. HM, like any other tool, takes time and practice to master. Once you do, you'll find it to be an extremely powerful tool to use. But, like all other tools, there is no one tool for every job. HM is not for everybody or every property. But it is a tool that's available and lots of people use it every day. Lots of very successful people I might add.

Hopefully you take this message to heart. It's not meant to insult you as much as hold you accountable for your part of the deal going bad. And, it's also meant to call you out for bad mouthing HM lenders. It's uncalled for and unnecessary. Yes, I know that there are a few bad ones in the mix. But, to say we are all bad is wrong.

Good luck. I hope you take this information and use it to better your investments in the future.