All Forum Posts by: Jeff Cichocki

I think there is some confusion in your question...

Once the seller signs and accepts, there isn't any more negotiating. They're accepting the offer as it is. 

I the seller is asking for additional changes, it's not accepted, they are countering your offer. If they don't change the price but are changing the inspection clause and you have to sign and agree to it, it's a counter. It's not accepted until both parties sign the offer. 

As to the inspection... It all depends on how bad you want the house, how comfortable you are with not being able to ask for adjustments after your inspection and how experienced you are at doing your own inspections. If your not comfortable (which is where it sounds like you're not), move on. It's not worth the lost sleep and stress. 

Hope this helps. 

@Jeff Duke, Welcome. Congrats on taking the plunge. You're in for a bumpy and rewarding journey (all the good ones are).

Make sure you hit up the forums and ask questions. There's lots of really good people in there eager to help.

I agree with @Curt Smith (hey Curt, good to see you here). Learning the more creative styles of buying houses will serve you well. There is a ton of competition in the marketplace right now (lots of newbies running blind and homeowners willing to buy junk just to get a house). Understanding how to buy creatively (subject-to, lease option, master leasing (with or without an option), seller finance, partnering, etc.) will set you apart in your market. If you know how to do things others don’t, you can build a reputation as being the go-to guy for the “tough” properties that no one else can seem to buy.

Good luck. I wish you the best.

Hey @Brandon Jefferies,

Google is good way to find Hard Money. However, the best way is to ask people in your local REIA for a referral. I know it's harder to meet with Covid, but I would bet your local REIA has found a way to keep it's members connected.

It's not necessary to have an LLC to start. If you do decide to go without, just make sure you have adequate insurance to cover your assets in case you get sued by a tenant. I would recommend exploring an umbrella policy with your insurance agent.

If you buy the property in your personal name and then move it to an LLC later, make sure you get a new insurance policy. The transfer from you to the entity is considered a sale and you're original policy could easily decline coverage when you need it most. When you get the new policy, make sure you list yourself as an additional insured. Some banks will call the note due if the title transfers. They catch the transfer most often because of the change in insurance. As long as you're still listed in the policy, they don't usually care and will let it slide.

Whether or not you buy a turnkey property vs a BRRRR has more to do with your own comfort levels than anything else.If you're comfortable with renovations, then BRRR is a good way to go. You'll probably get your properties at better prices than you will with turnkey. However, if you're not comfortable with renovations, then turnkey may be the better path for you. You'll pay a little more for the properties, but you'll be getting a done for you property in trade.

Anyway, good luck and feel free to ask more questions.

Hey @Jennifer L.,

Glad to see you here. I'm from Wisconsin as well. I'm up the Green Bay area.

I personally love partnerships. Most people hear that word though and cringe. Partnerships often go sideways and end friendships. Why, because people "jump into bed" with no real plan and no really deep discussions about how things are run and managed day to day, how to deal with disagreements, roles & responsibilities. But, done right, they can catapult yor investments much faster than on your own.

Personally, I like the LLC route best, but that's because I have assets to protect. However, iIt's not necessary to have an LLC. If you decide (and only you can decide) to not use an LLC, as a minimum, get a really good JV agreement and adequate insurance to cover you and the property you buy for liability. I would suggest talking to your insurance agent about an umbrella policy if you don't already have one. Note: Most insurance companies require you to have the highest levels of coverage on your car insurance to get the umbrella coverage, so if you aren't carrying that already, plan to up your premiums there as well.

I would also suggest you talk to various lenders. Get to know several banks, credit unions and hard money lenders. Not all lenders are the same. Some like investment property, some don't. Some will lend on properties that need work, some won't. I would recommend having 3-5 lenders who are interested in working with you in your back pocket. Ask other investors in your area who they use. Referrals are always the best way to get in the door.

Good luck!

Hey @Kevin Diesel,

Glad to see you exploring your options. Couple of thoughts...

1. Most HML's won't lend to you personally. But, that's not because of Dodd Frank. Dodd Frank covers personal loans, not commercial (all HML's are commercial in nature). There is lots of misinformation on this topic. But, the biggest reason for not lending to you personally is that you could decide to move into the property. If you do, you could argue Dodd Frank in court. Lenders aren't in the business of taking unnecessary risks. So, it's a lot easier to avoid the issue than it is to deal with it. Currently, if I lend money in my home state of Wisconsin, I do still lend to investors in their personal name.

As to your rental numbers, everything varies from market to market, but the 1% rule is a decent basic guide to follow. Generally speaking, you need the rents to be at least 1% of the purchase price of the property. In you're case, if you're all in for 90k, you should cash flow. However, if you had paid full retail (which lots of people are doing today), at $140k, you would likely not cash flow. On the surface, it looks good. However, the only way to now for sure is to see the expenses that go with the property.

If you go with a cash-out refi, you will need to wait some amount of time (varies by lender). Most lenders will require you season (own/collect rent) for 3-6 months (6 being the more common number) before they'll give you any money out of the deal. Most lenders also cap the refi at 75% of appraised value for these. Using you're numbers above, if the property appraised at $140k, in theory, you could take out as much as $105k. Be care full taking too much out. This is how a lot of investors got burned back in 2008. They pulled out every penny of equity and then the market turned; values went below the loan amount (upside down). This is not where you want to be. My advice, get your cash back, but nothing extra.

Anyway, good luck.

Hey everyone, 

I recently ran into a scenario that I believe to be mortgage fraud (i.e. you go to federal prison for this one) and I wanted to warn others of lenders that offer this scenario...

A borrower came to me asking what programs we offer and how they were different than other lenders; fair question I thought. I asked, what program he was currently using from his current lender to see if I had something similar. Here's what he told me...

1. The lender was giving him a simple and straight forward 65% LTV of ARV loan towards the purchase rehab of the property.

2. The lender was also was providing an additional (separate) hard money loan for 15% of ARV. This additional loan does not fund. These funds are all held in escrow for the duration of the loan.

3. They built this structure because they were looking to BRRRR the property and that the borrower wanted to pull as much cash out as possible at the refi.

Fast forward to payoff/refi...

When the borrower refi's with a local bank, it appears to the new lender that there is an 80% loan against the subject property. Banks are much more lenient on refi's than original purchases and they tend not to dig in as deeply on the property or the situation. So, the new lender approves the loan and pays off the 2 loans for the full 80%.

From the payoff proceeds received on the 15% loan, the original lender deducts his transaction fees from the loan and pays out the overage to the borrower. There are two very big things wrong with this scenario...

1. They are doing this to simulate a cash out refi without the new lender knowing that that's what they are doing (can you say falsifying and misleading?). Most banks won't do cash out refi's at 80%. Most stop at 75%. This ploy to get paid off for 80% is tricking the banks to over leverage themselves in the deal.

2. The second loan is a bogus non-existent loan. It requires zero cash to create because there are no funds needed for funding the second loan. The payoff on the backend supplies the funds necessary to pay the fees to the original lender and for the borrower to get his cash out.

Lying, falsifying or misleading a lender can easily be considered to be mortgage fraud; especially if that lender is a federally insured bank or credit union. While the feds probably wouldn't prosecute the borrower (assuming they turn on the lender - and I'm sure they will), it's hard to argue that he wasn't an accomplice in the fraud; he could explain the loan in detail, so he clearly knew what was going on. He may not have understood that it is likely to be highly illegal, but he still knew.

As an active investor and lender, I love a good creative deal. But, if you ever run into a lender that has some "extremely creative" ways to get deals done, be very very afraid...

If it seems to good to be true, it probably is.

I know this is an old thread, but I recently ran into a scenario that I believe to be mortgage fraud (i.e. you go to federal prison for this one)...

A borrower came to me asking what programs we offer and how they were different than a competitor. I asked, what program he was currently using from the competitor. Here's what he told me...

1. The lender was giving him a simple and straight forward 65% LTV of ARV loan towards the purchase rehab of the property.

2. The lender was also was providing an additional (separate) hard money loan for 15% of ARV. This additional loan does not fund. These funds are all held in escrow for the duration of the loan.

Fast forward to payoff/refi...

When the borrower refi's with a local bank, it appears to the new lender that there is an 80% loan against the subject property. Banks are much more lenient on refi's than purchases and so they tend not to dig in as deeply on the property or the situation. So the new lender approves the loan and pays off the 2 loans for the 80%. 

From the payoff proceeds received on the 15% loan, the original lender deducts his transaction fees from the loan and pays out the overage to the borrower. There are two very big things wrong with this scenario...

1. They are doing this to simulate a cash out refi without the new lender knowing that that's what they are doing (can you say falsifying and misleading?). Most banks won't do cash out refi's at 80%. Most stop at 75%. This ploy to get paid off for 80% is tricking the banks to over leverage themselves in the deal.

2. The second loan is a bogus non-existent loan. It requires zero cash to create because there are no funds needed for funding the second loan. The payoff on the backend supplies the funds necessary to pay the fees to the original lender and for the borrower to get his cash out.

Lying, falsifying or misleading a lender can easily be considered to be mortgage fraud; especially if that lender is a federally insured bank or credit union. While the feds probably wouldn't prosecute the borrower (assuming they turn on the lender - and I'm sure they will), it's hard to argue that he wasn't an accomplice in the fraud; he could explain the loan in detail, so he clearly knew what was going on. He may not have understood that it is likely to be highly illegal, but he still knew.

As an active investor and lender, I love a good creative deal. But, if you ever run into a lender that has some "extremely creative" ways to get deals done, be very very afraid...

If it seems to good to be true, it probably is.

@Edith Alvarado de Cortez,

Getting business lines of credit is a double edged sword and they're not for everyone. If you do your homework and you feel that they are good fit for you, then they are a good fit for you (regardless of what anyone else thinks).

The most important part of deciding whether or not to pull the trigger is understanding the rules and how they create risk for you. You need to find out...

1. Cost to get the credit

2. How to convert to cash

3. Cost to convert to cash

4. Monthly payments (can you afford them).

5. Do you have contractors who accept credit cards? No need to convert to cash if you do.

There are other options out there as well...

1. You can try to find a private lender at one of your local REIA/Meetups

2. You can learn to ask for seller financed deals.

3. You can bring in a partner.

4. You can take over properties using leases and/or options.

Anyway, the point is... Ask the right questions and make the best choice for you.

Good Luck!

@Mo Muigai,

You need to ask your money partner what they want/need to feel comfortable in the deal. Whatever that is (as long as it still works for you) is what you should set up. That means it could be a true JV, it could be a loan, it could be a participating loan, it could be an option, it could be a lot of different things. It could be a blend of more than one of these things. There is no one right answer. You have to sit down with your money person and figure out their needs. Without knowing their needs, everything you offer is just speculation. Make the wrong offer to many times and you could easily scare your partner away.

My advice... Stop asking us what we would do and go ask them what they want (sorry. that sounds a lot more harsh than I actually mean it). After you find that out, come back and ask us how to help you structure something that fits that. After you have a structure that looks good to both of you, get an attorney involved to draft the agreement. 

Good luck.