All Forum Posts by: Jeff Cichocki

@Jacob Lamar, unfortunately, most counties have switched to all cash because of being burnt so many times by investors who want to finance the properties but can't actually close for one reason or another. Here in Wisconsin, most counties require 10% down in cash or cashiers check right after you win the auction. You then have a short period of time to finish the closing. You can bring in funds from any source at that point.

But, we're one of the more flexible states yet. Wisconsin isn't exactly the hot bed of american investing. The counties haven't been burnt as much here.

Good luck!

@Nigel Prentice, every market is different. I'm up in the Wisconsin market. In Milwaukee, Hard money is commonly at 15% and 5 points; sometime higher. In the Green Bay & Appleton markets, it's 12% and 3 points. Each market will price itself to the max that the market will bear. Most of my borrowers who have transitioned over to private money are typically paying 10% (or less) and no points. I know a lot of guys down in the Atlanta market who are getting their funds at 8% and no points.

There are several national lenders like Lending Home that start their HM at 6.99% and 1 point. They are backed by large hedge funds who will accept a low rate to keep their money busy. But, there are some big disadvantages to their clients who use them. When everything goes well, as you would expect, no issues. But, when things go sideways, watch out. It's all about the numbers and there's no flexibility. 

An advantage to being a local HM guy is that we get to know the borrower and help them out. If things do go wrong, we can work out a solution. There's huge value in being their financial partner as opposed to just lending them money. You may need to educate them on the value that you bring, but you'll find that the people who truly understand the difference between the cost of something and making a little less from the deal will use you exclusively and you'll both make more money.

The bottom line answer is that you may want to go to the REIA's and pretend to be a borrower so you can see what others are lending money at in your markets.

Good luck!

Blending ROI's together is a hard thing to do with the sites calculator. I used to just run them as two separate calculations and then do the blend manually. I found it much easier that way.

Over time, I ended up having a calculator built for on Fiverr or Upwork (can't remember exactly - it's been a while) that did exactly what I wanted.

Good luck!

@Rafaella Almeida, 

Before I answer your question... In full disclosure, I'm a Hard Money Lender. However, I'm also an investor just like you. My business partner & I started out flipping and renting houses just like everyone else. Sometimes, we wholesale a house off when we have too many projects going on at the same time. I look at things from both sides of the coin because I'm playing both sides.

speaking practically, your question doesn't have a right or wrong answer. 

The correct answer is the one that makes both you and your husband the most comfortable. Just because someone says that a HELOC is dangerous or that HM is dangerous does not make them dangerous. And, expensive is relative to the deal. Typically those that tell you how bad a HELOC or HM is don't know how to use either properly. A HELOC is a tool. A HML is a tool. When used improperly, people get hurt. So... Let me walk you though the difference between the two.

1. HELOC's provide easy and fast access to cash. They usually have lower fees, lower interest rates, lower monthly payments and they typically come with checkbook control. They are extremely flexible and can be very be very powerful. But, your husband is right. As good as those benefits sound, they come with an added risk to your family. You are essentially betting your family home that you will be successful and that nothing will go wrong in the flip. Unfortunately, bad things happen to good people. If something goes wrong and your HELOC is tapped out, what will you do to recover? If all of a sudden you have to take a loss, can you afford it? What will happen to your family home if you get in to far over your head? What your husband is worried about is real. It may never happen, but it's still real to him. HELOC's can be a great tool, but you have to go in completely understanding the rules and risks and weighing it out for your family.

2. HM is a very powerful tool. You can get into houses with little to no money down, you get an extra pair of eyes validating the deal for you, you have someone looking over your shoulder making sure you and your contractors are staying on task and you don't have your personal residence tied into the deal in any way. However, being able to get into a deal with little to none of your own money comes at a cost. HML's typically charge points and a higher interest rate. Some charge additional fees (sometimes ridiculous fees). But, when's the last time an investor got a house under contract and ran around telling everyone that they can't wait to lose money in the deal. It doesn't happen. No one ever expects to fail. If they did, they would never do the deal. Way to many borrowers neglect the fact that despite not thinking they'll fail, they do. HML's are much lower risk on the gran scheme of things. If it goes sideways, you lose the property, not your house. Safety comes at a price. But, what's the real price? Unfortunately, few people seem to understand the difference between cost and making less. A cost is money you pull out of your pocket. A good lender will roll most if not all of your fees into the loan meaning they are paid on the back-end out of the profits of the flip. When you pay on the back-end, you make less; but you didn't experience a cost to do that.

When I speak at the REIA's, I try to educate my borrowers how to think like a lender. If you can learn how a lender thinks, you become a much better borrower. You learn how to use the tools to their maximum advantage. The easiest way to win this game to become and expert craftsman of the tools you wield. If you understand the true risks of the loan, you'll be able to get HM almost will. You'll also be able to build a nice little portfolio that you can show to potential private lenders (usually the best way to borrow money; but not always - I can tell you lots of horror stories about bad private lenders). Over time, you'll convert most of your financial needs to private capital. Once you do that, HM and HELOC's become a back burner item for you.

Good luck. I'm always happy to help where I can.

@Joel Perez, For your Wisconsin deals, I'd be happy to help if I can.

We use private lenders to back all of our loans. When we give out a loan, you are working with real people throughout the entire process. You are not just a number and we want you to succeed. While we are prepared to take back a house if a deal goes sideways, we don't want to. The highest amount of profit is when a lender helps the borrower succeed so that become a repeat borrower. A good lender cares about your success.

As for the rest of the issues being faced by using companies like Lima One, my advice is to try to find out what kind of funding they use. Most national guys and even many of the larger local guys use Hedge Funds for their backing. We've looked at using HF's on multiple occasions before. We've walked away from every single one of them. As a lender, I can tell you that they generally don't care about you or your success. Sure, their points and interest can be lower, but you pay for expenses that are typically unnecessary, rigid rules, slower processing on the draws and fast foreclosures. They are not everything they are cracked up to be. You have to look deeper into who they are and how they do business. Using a local lender will almost always be your best path. They know your market and can help you if you run into any issues.

Good luck!

@Patrick Lloyd, the way you are describing it is a prohibited transaction. You need to change it up if you want to work with your IRA in your deals. Here's a couple of things to make sure you keep straight in the deal...

1. You can partner with your SDIRA. You cannot borrow from it. Your SDIRA and you may each own a % of the deal.

2. If you partner, your IRA must share in all profits and expenses at the exact percentage of the split. For example, if you put up 50% of the cash personally and your SDIRA the other 50%, any and all bills and profits must be split 50/50. You may not pay the bills with your cash and get reimbursed. You must each pay separately.

3. Because your SDIRA is an owner in the project, you can not do any work on the property your self. Your SDIRA would benefit from that and you would be personally benefiting from the use of the SDIRA. This would be a clearly prohibitted transaction and could blow up your SDIRA.

Personally, I try to steer people away from partnering with their IRA's. The reason being is that most borrowers are active flippers or Landlords and will show up on the project and help somewhere along the way. When your IRA is an owner, you can't even change a light bulb without being in violation. Too many people forget and help out. You would be bettor off borrowing the funds from someone else that is not a prohibited party to your deal. Use you're funds on deals that you will be 100% passive in. It's the safest way to do it.

As a small side note... Be careful who your custodian is. Some custodians are more prone to internal audit from the IRS than others. It's hard to know without directly asking them when their last audit was. I can say that the higher their profile, the higher the likelihood of an audit.

Be careful and good luck!

Have you looked at Hard Money Bankers (I'm not affiliated with them but I am friends with the two owners)? They are local to Baltimore. My personal opinion as that you should use a local HML whenever possible. They can be a huge asset to you if you run into trouble. They're in the trenches with you and a lot of other investors in the area. They'll be a huge help.

Good Luck!

Based on your numbers, your PL can't swing the entire deal on their own. If it's truly a good deal, use HML to do it. The deal should be able to support paying the added cost and still leave you with a healthy profit. Your HML should be able to tell you whether or not they like the deal quickly. Find one that is reasonable with their costs and save you PL for another deal.

If you save your PL for another deal, you need to go out and find one. Leaving your PL's hanging for too long will give them the desire to go work with someone else if a good deal comes along. Can't tell you how many times I've seen a borrower drag their feet and lose their PL to another investor because they weren't able to keep their PL's money invested for them. Every day their money is not deployed, it's losing money. You have to watch out for their pocket or you'll lose them.

Good luck!

I know that there are a lot of people who say to never use hard money, but have you considered it? It has very significant benefits and can enable you to completely alter the way that a bank will look at financing you...

1. Buy the property using hard money with the HML in 1st.

2. Put the seller in 2nd (there are a lot of HML's who will allow 2nd's right from the start).

3. Hold the property for a few months and then apply for a refi. The rules to a refi are considerably less stringent and will often times allow for cash out (typically not to exceed 80% LTV though). If you don;t understand the different between a purchase money loan and a refi, you should do some research. When you combine HM with a refi, it can be a very powerful combination.

Yes there is a cost to using HM to acquire. No, HM is not for everyone nor every deal (despite what most HML's say). But if the deal is good and it's the only way to get it done. you should seriously consider it. We help a lot of borrowers in our area do this. It works really well. The banks that we work with on the refi love it. They know us and the deals we put together. It's always a good clean property for them in the end.

One quick point about refi's before I sign off... In just about every case, the bank will base the refi on appraisal instead of purchase price. Many HML's will fund 100% of purchase (not all will; you may need to search for one that works for you). Using a two step approach to the property can eliminate the amount required for down payment (i.e. - it can go to zero if you're getting a good enough deal). This allows you to use the equity instead of your cash. If you do need to come up with money or a seller carry back to make the purchase and you can do the purchase under the 80% rule, you can almost always end up with a deal that you little to no money out of your pocket. This strategy is super easy to deploy and can reap huge rewards. Find a good lender who understands how to tee this up and you'll explode your buying.

Good luck!

@Benjamin Ortiz, I would highly recommend the Brew City REI Club and the WiscoREIA. Both groups will offer you some great opportunities to learn and network.

I'm hoping to make the Kenosha meeting on the 20th. I will be at the Brew City Lender Bonanza on the 23rd.

I'd love to meet up and connect.