All Forum Posts by: Jeff Cichocki

@Benjamin Ortiz, feel free to reach out. I'm always happy to help where I can.

@Carlos Torres, please check out the link that @Remington Lyman posted. Also, go to wastoninvested.com (I'm not affiliated with this site - Jeff's a friend and he gives out great information) as well and watch the videos. The videos are from an interview with the Ohio Division of Real Estate.

@Abrahim Alderwish, you can not under any circumstances advertise the property without a license. If you mention the address, pictures and details about the house, you are going to get in trouble at some point. You don't own the house and don't have the rights to advertise it for sale (you can't get those rights without a listing agreement - meaning you have to be licensed). All you have is a contract to buy it. Nothing more. Within the contract is the address to the property. Your buyer is expected to do their own due diligence when they want to buy your contract. That means that they need to look up the address (make sure it's complete - full address, city state & zip) and go find the photos on Zillow or wherever. It is the buyers responsibility to dig in and figure it out. They are buying a piece of paper, not a property. If you advertise the property, it is a blatant violation and you could could get into serious trouble.

Now, with that said, I'm not trying to scare anyone. I'm trying to educate and keep you safe. I want people to succeed not fail. Wholesaling is legal when done properly and only when it's done properly. Are you catching the word "properly"? It's critical to your success and safety as an investor. The trick to everything is that you need to look at, understand and follow the rules so that you provide relevant information that will make things easier for your buyer. How do you do that and still stay legal? It's not complicated at all. It's so obvious that few will think of it... Put more information in the contract to make it easier for people to do their research. For example, if you add extra information to the address line such as "123 main street as pictured on Zillow" (or put the reference to Zillow somewhere else that makes more sense). Or, "this house is to be delivered to the buyer in the same condition as pictured on Zillow". That tells me the address and where to find pictures without you actually providing pictures. I have to read the contract to get that info, but if I'm buying a contract from you, I should be reading it anyway. AND, I really shouldn't be trusting the pictures and information that you provide anyway. Your buyer needs to verify everything you are saying about the property to make sure it's a good deal for them. The listing on Zillow (or whatever site it is) should have the missing pieces. If you know that it doesn't, document it in the offer. Or, provide an inspection report and reference it in the offer. i.e. "seller to provide house in broom swept condition as depicted in the attached inspection report, see attachment A". Write things like the "5 year old water heater is to be included in the purchase", "the 1 year old roof is subject to inspection", etc. In other words, make all this information part of the contract. I know it sounds silly, but how much more obvious does that make it for your buyer to know information about the water heater and roof. When you advertise the contract, you can't advertise the details. But, there is nothing that says the contract can't contain additional information about the expectations and conditions of what's being purchased. Extra information will help your buyer and make their decision easier.

Besides, if you gave me a contract that contained everything I need to know and you made my job easier as your buyer, how likely am I to come back and buy more from you? Is anyone else in your market providing this level of service? If not, be the first. Make a reputation for yourself. The better of a service you provide, the more money you will make. Provide contracts of value and you'll do way better than you are now. Remember, most people are lazy and won't do the small extra's to earn someone else's business. Doing it right creates additional opportunity for you to shine.

Make sense?

Unfortunately, what @Luke G. said is correct. You have to live in the property to qualify for an FHA loan. If you fudge information, it's mortgage fraud and potentially some jail time. It's not worth it.

@Scott Rogers idea of co-signing is the best way to handle it. This way it's in your grandma's name and she lives there.

@Benjamin Ortiz, It's incredibly observant of you to notice that they aren't telling you the full story. They're not. 99% of wholesalers out there don't have the full story. This might be a little long winded, but here's what's going on and what you need to watch for to stay compliant and legal.

Please don't misunderstand what I'm saying below. Wholesaling is good and profitable. But, there is a right way and a wrong way to do things. Stay above board and you'll have nothing to worry about. Always look out for your seller and you'll have nothing to worry about. The information below is to give you a good background and context of how to do it legally.

1. Everything they say about getting the house under contract is true. You can't do anything until you get that. If you don't have a contract, you have nothing to market. If you don't have it under contract, under no circumstances should you market anything about that deal.

2. Once you have it under contract, you have a contract. You do not own the house. You not have the equitable interest that many of the guru's claim you you have. None of the guru's are attorney's. I have several friends who are attorneys and they can site case law that will demonstrate that the guru's are blatantly wrong.

3. When you have a contract, you cannot advertise the house. You can only advertise the contract that you have. You cannot give out the address. You cannot use pictures in your advertising of the contract. It is up to the buyer to read the contract and extract the address from it. It is up to the buyer to look up address to get the pictures and other details. If you advertise the address, pictures and details, you are brokering without a license. It is illegal in all 50 states to broker without a license. Just because the realtors association isn't causing a ruckus and people are getting away with it does not make it legal. If I drive 100 MPH down the highway and don't get caught, it was still illegal for me to do. I broke the law. It's really that simple.

4. Take a look at the laws in Ohio & Illinois. Illinois recently made the national news because they passed a law that makes it blatantly illegal to wholesale a house or contract without a brokers license (I believe you can do 1 a year without it). I've been watching a lot of chatter in the forums about how investors are going to go out and get licensed to fix the problem. It's not that easy. When you are license, you are held to a higher standard. That standard requires you to do what's in the best interest of the seller. As an agent, you work for them. When you put a house under contract at one price and you sell it at higher price making a spread, you are in violation of your license. You knew about a buyer that would pay more (which would clearly be in the sellers best interest) to the the seller. And, no; disclosing that this is what you're doing does not relieve you of your obligations under your license. You cannot pocket the difference just because you disclosed your intent. Plus, you typically have to work under a broker for (I think) two years before you are allowed to get a brokers license. This is not an easy fix nor a good one. 

5. What's happened in Illinois and Ohio is what's coming for the rest of the country. It's just a matter of time. I also happen to know that the Attorney General in a couple of states have their sights on some of the major guru's that live in their state and teach it wrong. As soon as they get their legislation passed, you will see some big guys in some seriously hot water. They will make huge examples of them.

6. In Illinois, there were a bunch of brokers who stepped forward and declared that they would do flat fee listings for investors. The NAR (National Association of Realtors - all realtors are governed by them) caught wind of it immediately. They immediately responded with a new set of rules for realtors to follow to discourage this. The powers that be are dead set on creating a limiting set of rules to control how wholesaling is going to be done in the future. I honestly believe that they want to eliminate it if they can. I don't think they will, but they definitely make it harder for sure.

7. If you want to learn more about what's coming, go to WatsonInvested.com (this is not an affiliate link - I don't get anything for you going there - Bigger pockets will delete posts if you don't disclose). This is Jeff Watson's website. He is the attorney for the National REIA and spends a lot of time in congress fighting on our behalf. On Jeff's site, you will find a menu link to his wholesaling videos. Watch them. The videos he put up are where he interviewed the State of Ohio regulators regarding this topic. It will and should scare you a tad when you watch them. Don't worry. What he's talking about is what I'm saying above. Sell your interest in the contract, not the house. If you do that, you'll be fine. If you're in Illinois, good luck.

8. If you want to talk to an attorney in Wisconsin, I would recommend you get in touch with Amy Martin Farrow. I believe she is in the Milwaukee market. I don't get anything for referring you. She is a friend and a very smart one at that. She would be a good resource for you. She should be fairly easy to find on FB.

If you have any other questions about it, I'd be happy to try to help you get things figured out. Just reply to this post and I'll see what I can do.

Good luck.

Hey @Michael Sewall, One of the best thing that you can do to help accelerate your investing is to start hanging out with other like minded people in the area. I would highly recommend you following up on the advice Jason gave above and check out the local REIA's. We all become more successful when we help each other grow.

Hope to see you at one of the upcoming meetings.

Hey Matt,

Congrats on the duplex. As Scott & Jason have already mentioned, your local REIA's are great place to meet and network with other investors on the same journey as you. You'll find others who are newer to game and those that are quite seasoned there. Real estate investing is a lot easier when we all work together and push deals back and forth at each other.

Hope to see you at one of the upcoming meetings.

@Jarod Dudley, all of the above. A borrower shouldn't have to pick. They should be able to get fair terms, fair pricing, an easy process and great communication every time. 

But do they? Unfortunately not. 

Sometimes there are other borrowers who are not easy to work with and consume too much time from the lender which effects their ability to properly support other clients.

Sometimes, the borrowers deal is not that good and doesn't warrant a ton of time. Unfortunately, all borrowers seem to think they have the deal of the century in front of them. When it's not a good deal, the lender should be up front about it and let them know that, why it's not and how the investor could make it better so that it will work.

I've written this before in other post responses, but it bears repeating...

There are 2 and only 2 critical things to every deal out there...

1. Is it a good deal? I mean really? Why? The borrower needs to be able to justify it to the lender. If the borrower can't justify it in detail, it's probably not a deal. I've never had a borrower come to me and say "Man, I can't wait to lose money on this deal!". Yet, they get so excited about getting a deal, that what they present will lose them money. A good lender should be looking out for the borrower and working to help them succeed so that they become a repeat borrower. We all make more money when we work together and help each other.

2. Is the borrower experienced? How experienced? Are they capable of completing the deal on time and on budget? If not, do they have a partner or are they open to taking on a partner to fill the gap? Does the lender have a network of other investors that they would trust to partner with someone who needs the help?

There's obviously more to a deal than just these two things, but if the borrower can't get through these two, to me, the rest of the details are irrelevant and a waste of time to dig into. I apologize if that seems harsh. But borrowers need to think about these two things more than they do. Every deal that hits my desk is a "Great Deal!" per the borrower. Unfortunately, many fail on rule #1 above. A good lender will try to help turn them into good deals; or at least offer suggestions on how to get a better deal next time.

I'll end with this... Borrowers should learn how to be a lender so that they can be a better borrower. If they did, almost every single deal they present would get funded.

Hope this helps someone.

The definitive answer is... It all depends on you, what you need and what's important to you.

No. It's not critical. As you've already figured out, you can use your personal credit to get business debt.

However, if you want to get business credit without having to personally guarantee it, then the answer changes to yes.

Most investors don't plan their credit future. 

Do you need/want to?

Is it important to you? 

Do you need it for your business success?

Answer these questions and you'll know if you should care about D&B.

Learn to be a lender so that you can be a better borrower. I don't know of anyone who teaches that. Yet, it's critical to most people success and failures. Learning to invest without understanding debt is suicide (in my opinion). You need to learn this stuff because not all good debt is good for you on a particular property. Not all good debt is created equal. Not all good debt is the same. There is no one size fits all. There is no one answer. There is no simple answer.

Here's a bunch of random advice on different loan things...

1. HELOC's are a great tool when used right. They are a great tool when used at the right time.

2. HELOC's are not the panacea that most tout them as being. Good debt is critical to the success of most investors (especially in the beginning of their investment career). You have to learn how to use debt effectively and efficiently. If you don't know how, find a local expert/lender who understand real estate investing and get their help. Borrow from them even if their rate is higher (It's a good way to buy their experience without buying a mentorship). Do business with (or at least try to) those that help you. If you don't, you become a leach. Nobody like a leach. Leaches are plucked off and tossed aside. Be of value to those that help you. Don't be a leach.

3. Business lines of credit (credit cards) can be a very effective tool as well (I know that many will disagree with me). But, it depends on how you use it. Like all debt, when mismanaged, it will hurt you. HELOC's and CC's are double edge sword tools and they are both very sharp. Use them wisely.

4. For short term debt, the interest rate is less important because you're only going to use it for a few months. And, the property can afford it (if not, it's not a good deal).

5. For long term debt, the interest rate and terms becomes a lot more important. Pick a low interest rate with a short balloon and you could get burned if the market changes (and we all know it is and will). Pick a higher rate and a longer term and you get more stability and safety.

6. When taking out a commercial loan, make sure you read the note & mortgage. COMPLETELY! I can guarantee you that there are things in there that you need to be aware of. For example, almost every commercial loan out there has a call provision in it (i.e. the bank can call the note due at any time for absolutely any reason that they deem fit).

7. When taking out a loan in your personal name, understand the rules and limitations. They are easier to get into, but they almost always have a cap that can and will limit your growth. Learn the other types of debt as well. You need to put the right type of debt on the property. Pick the wrong one and it can bite you down the road.

Hope this helps.

There's no one straight answer. It depends on the property, the terms of the loan, your credit score (potentially), the bank or CU's appetite (how hungry are they for them) for investor loans, are you using a bank or broker, etc...

The best you can get for answers here is... "My last loan was at x%" answers. The answers you get may or may not apply to you and your situation.

I would suggest reaching out to some of the local hard money lenders in your area. Ask them which banks and CU's are refinancing their loans out on the back end. I track all of this for both my and my clients info. I can't control the terms, but I can guess the flexibility of the bank or CU based on how many of my clients are using them. 

I may be unique on this topic, but I want to help my clients succeed. I want to help them with their exit strategies.

I've also created relationships with many of our local lenders who like to refi my loans out. It doesn't get my clients a better rate, but it does make their refi's a lot easier because the banks know me and my lending programs. They know exactly what we're doing on our end and that we're happy to help them get the loans too. Besides, the one thing I've learned about this business that has made the biggest impact is... team work. We all make more money when we help each other. There's no need to be greedy. There's more than enough money out there for all of us.

Good luck. I hope this helps.

I'm not 100% on this one, but my gut tells me the IRS would interpret it as a prohibited transaction. The reason I think that will be the case is because you will have owned it yourself.

Unless someone is an IRS expert/attorney on the subject of SDIRA's, I would actually steer clear of anyone who tells you this is OK to do. I would recommend reaching out to John Hyre on this. You can find him via his website at...

https://www.taxreductionlawyer.com/

Good luck!