All Forum Posts by: Jeff Cichocki

@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. 

@Sue Cearley,

I'm truly sorry to hear this. Bankruptcy is a bugger when a borrower files.

My question is... Did you lend to their LLC or did you lend on the properties that the LLC owned?

If you lent against the properties, then they should not have been able to sell anything without you getting at least some of the money (courts can force the liquidation of assets at fire sale prices in an effort to get cash into the coffers). Judges don't always following the laws themselves. Unfortunately, I've seen this happen.

If you lent to the LLC, there's not much you can do unless you can determine and prove that they commited fraud in their dealings with you. I'm guessing this is your case since you didn't get any money. Your IRA custodian will have a process to accept the loss and reflect it in your account.

Again, truly sorry to hear this.

@Juan Gallegos,

In addition to finding a good attorney that understands lending (which is rare in my opinion), you should also go out and take some classes on how to be a Hard Money Lender. The right education will help you scale your business. Believe me when I say, it's super easy to get more clients, but if you don't have the right paperwork AND systems, it can be a major pain to scale; it's very easy to get overwhelmed with loan requests. Look into Dyches Boddiford (assets101.com) and Bill Bronchick (leglwiz.com) for more info (those are not affiliate links - I don't get paid to recommend them). I am friends with Dyches and have been to his class several times. I have not taken any classes from Bill. I just know he has taught on the topic too.

Good luck. If you need any other help, don't hesitate to reach out.

@Tuan Tran,

Lending in other states can carry a higher risk for you if you're not working with the right people. I would strongly recommend that you find local boots on the ground to work through. Just networking alone will not find you the best borrowers. All borrowers and all of their projects are a great risk in their eyes.

One of the questions I like to ask is this...

How many investors in the room tonight have gone out and found a great deal, got it under contract and then went home to tell their significant other... Man! I can't wait to lost my backside on this!

No one will ever say this. When you are lending to strangers in other parts of the country who you have no real relationship, how will you manage the funding of the project? How will you properly control the draws? Inspections? Relationship? How will you properly vet your borrower? There's a lot more to lending than just finding a warm body and a deal. 

Call around to some other HML's across the country and ask them what their foreclosure rate it. I promise you it's pretty high. Our's is 5 properties in 10 years. I would suggest you find someone to work with who will work with the borrower to make sure they succeed. There is way more profit in not foreclosing than there is foreclosing. The lifetime value of a borrower i significant if you can help them succeed. Plus, it's way cheaper to market and help the same borrower repeatedly than it is to constantly have to find new people.

You should make sure that the people you work with will provide you with the same thing but as safely as possible. Unfortunately, there are a lot of empty promises here on BP.

Good luck and be safe with your money.

Hey @Claude Calixte,

So... let's start with your credit score first.

Everyone knows that we have 3 different credit agency's. What few know is that each of those agency's have multiple scores for each person. I know of at least 5 different levels of scoring. That means, you have at least 15 different possible scores.

Here's what that means... Whoever is pulling your score, requests that score based on the level that want to asses your risk at. Some are going to be more conservative (want a lower score) and some are more aggressive (a higher score). The problem is, even if they tell you what level that they want to pull, as a consumer, you really don't get to see that. If you run out and pull your own score, that agency is going to report it to you based on what they think you want to see. That means that different services may give you different answers as well.

And, if what I just said doesn't confuse you enough, mortgage companies have a unique way of trying to assign you another score called your FICO score. It's really a mathematical blend of scores. And, to make it harder to figure out and understand, it's also possible to pull different FICO's from different reporting agencies.

Let's put this confusing mess into an example...

Lets say you want to buy a new car. But, you're worried about what your score is, so you pull it yourself before you go shopping. When you do, your score comes back at 650. You think to yourself... No problem. I'm above the typical floor of 620. I'll be able to get the financing that I want. so, you head to the dealership and find the car you want. You fill out the 693 pages of loan application paperwork and you're approved. You end up with terms that are way better than you thought you'd get. So, you ask the finance guy at the dealership what your score came in at. He tells you it's 720. You're like... Holy smokes?! how'd that happen? This is exactly what I'm saying above. Yes. You're a 650 in one scenario, but you're a 720 in another.

Here's why I use the car example...

Car finance companies have figured out that people will make their car payment before they'll make their house payment. Because of this, car lenders tend to pick a more aggressive score than a mortgage company would (a mortgage guy might tell you that your score is 622 when you think it's a 650).

Unfortunately, most lenders don't know all of the intricacies of financing either. They just know what they're told. I was in that same boat until just a couple years ago. Someone wanted a loan, I just pulled the report and gave them a quote. I never asked how it all works behind the scenes. I had no reason to question anything. The system worked. But one day I was challenged by a very frustrated borrower. He was very polite and really wanted to know why he was having such a hard time. He gave me the example of how his score was higher when he bought a car and lower when he wanted to buy a house. So, I got curious and started to dig around. BTW... what I said above is not common or easy knowledge to find.

Back to your question as what I think about your deal...

$1,200 divided into $30,000 would be a 4% rate of return on your money. That is not a good rate. There are tons of opportunities that pay way better than that. I've never had a private lender make less than 9% when they lend through me. 

IMO, I think you should either go back to the seller and try to negotiate a better deal or move on to another property.

Let me know if you need anything else.

Good luck.

Thanks @Odie Ayaga, I appreciate the mention.

@Account Closed, You're not supplying a lot if info in your post, but here's what I think I'm hearing you say...

1. You're not specifying whether or not this is a purchase or refi, but since you are saying "convert", I'm assuming you already have a loan that you are trying to convert to long term financing.

2. You're saying that you have a low FICO score

3. You're saying you want a really low equity position/down payment requirement in the loan.

4. You're saying you want a 30 year loan.

I don't know anything about the deal; I only know what you posted. If I'm reading this wrong, please feel free to correct me. I really would love to help if it's possible.

Finding a 30 year product is not the big deal. They are relatively easy to come by. But, based on what I have listed above, what you're looking for is an almost impossible request. But, let's walk this though...

The reason you're not finding a 90% LTV loan is that it doesn't exist; especially if you have a low FICO score. Lenders don't do super high risk loans any more. The crash back '08 taught them a lot about risk. An 85% LTV is the highest I've been able to find, but you have to have a higher score to qualify. And, if you're looking for cash out, the LTV drops to somewhere between 75% & 80%, but that too is dependent on a higher score. The lower the score, the lower the LTV allowed and the more "skin in the game" you have to have.

Let's put on the lender hat for a second and think about it from their stand point... It's extremely risky for the lender to be at that high of an LTV with a borrower that hasn't shown financial responsibility (low FICO). Here's how they come up with that determination...

Lenders have the criteria they do to help mitigate risk. In order to build in any kind of safety into the loan for the lender, they have to match LTV's, loan amounts, FICO, experience, interest rates and fees. Each of the 6 major criteria has an impact an on the loan. If any one of the criteria gets a little too far away from center, lenders will deny the loan. Unfortunately, based on what I think I'm reading, you have 3 out of the 6 pieces off of center (you want a high LTV, low down payment & you have a low FICO). Unfortunately, that makes both you and the deal a very high risk combination. 

I'm sorry. I wish I had better news. The best piece of advice that I can offer is to work on you cash position, your FICO and the LTV's of the projects you're in. If you can fix those 3 things, you'll become very bankable.

If you have any questions for me, feel free to either respond to this post or send me a DM.

Good luck.

@Jeremy James Hartman,

I see that you said you're new to this, so let's walk through your numbers (I'm assuming you are correct for this example)...

Purchase Price is $65k.

Rehab is $10k.

Total investment = $75k.

ARV = $100k.

1. A bank won't likely lend on this because it needs repairs. This means that you're not going to get a home loan (regular home loans are for people who live in them, not people who flip them). So, you'll need to talk to a hard money lender or a private lender to get funded.

2. With an ARV of $100k and you're all in investment of $75k, you're over the 70% rule (75/100 = 75%). It's extremely rare to find anyone willing to go past 70% on a flip. Assuming you can find a lender who is willing to give you the 70%, that means they only gave you $70k. You will need to bring $5k to the table to get the deal done (and that's not taking into account any down payment requirements, closing costs or other fees you will likely need to pay when you buy it; I'm guessing you'll be closer to $10-15k out of pocket).

3. Your math has an error in it. You said that you could pull out $35k after. On the surface, you're looking at a $25k profit. However, this is not a real number. NOTE: This is not a full & complete analysis... If you list the house for sale at $100k, you're going to incur 6% in commissions to the realtor. You need to plan for some concessions (I know it's a hot market and you may not have to conceed anything, but a $10k rehab isn't going to make the house super nice unless it's already super nice; it's not enough money to really make the place pop). I'd plan another 4% for that. Then, you need to plan for closing costs. It depends on what part of the country your in, but let's just say it's 1%. Then you have some carrying costs that you incurred while you held onto the property (taxes, insurance, utilities, etc.). Let's say that's another 1%. Then, you have interest costs from the loan you took out. For sake of simple math, I'm going to assume you got a smoking hot loan at 6%. I'm also going to assume that it took you 6 months to get this project done and off the books. If it takes you 6 months, that's half a year, so you'd pay half of the 6% for a 3% cost to the project. If I stop right now, I'm at 15% in costs. That 15% in costs equates out to $15k in profit you won't get. So, if I deduct the $15k from the $25k I thought I was going to make, I'm down to $10k. That's not a lot of profit at all. As a matter of fact, it's so small, the likelihood of it being real is unfortunately in the toilet. Something will go wrong. Your rehab is likely to go over budget. Every dollar you go over budget, reduces your profit. This is not a good deal. You need to buy it at a much steeper discount than this is you want to make money with little risk of losing any.

This is a very thin deal. If you told me you were buying this at $50k and it needed $20k of rehab, it would start to sound a lot closer to a real deal where the numbers may work (although, in my opinion, a 70% LTV on a low price property like this is very high risk to you as the buyer/borrower). I wouldn't go above 65% if it were me. If I can't get it for the price that I need for it to work, I'd move on.

It's difficult to give you all the details you need to succeed and analyze a deal in a message. But, I would strongly suggest that you use the deal analyzer that is built into BP; it's a great starting place.

You made a comment about how it looks like it's easy to find money. It can be. If/when you have a really good deal, it'll be easy. When you have a deal that you only think is a good deal, it will get turned down (no one ever presents a deal that they think is a bad deal).

Good luck. I truly hope you can find a really good deal.

@Keith W., Be careful taking on all that additional debt. Your definitely going to see a spike in monthly payments if you refinance. Even if you can afford it, is it the best thing for you to do? I'm not sure. You'll have to run the numbers yourself.

Another thought that I have though is, get a partner (most HML's will let you do that). You don't have to permanently go into business with them. You can do this one property at a time. But, having a partner who has the cash required to meet the HML requirements may be worth it. Remember, there is a big difference between a hard cost (especially when it hits your personal checkbook) and making a little less in a deal. Having a partner would just mean that you make a little less per deal. Having a partner doesn't have to be permanent either. You could agree to buy them out after 'X' amount of time through a refi of the investment property. A partnership can be anything you want it to be. Just make sure that it's beneficial to both of you.

Good luck.

@Alex S., When you start calling the local banks, understand that you will NOT be living in the home while it's under construction. You won't have the occupancy permit. Yes, you are planning to live in it in the end, but not during the building of the property. I realize it's not an arms length transaction, but I'm sure that there's someone that will. If by chance their's not, try to find a hard money lender. They may have alternative new construction type loans available. You should be able to find HML's at your local REIA's and Meetup groups in and around your area. If you can't, my friend Dyches Boddiford lives up closer to Marietta. He lends money. He doesn't advertise it, but he may be a resource for you. You can contact him via his website at assets101.com. I'm not sure if he can help or not, but he may know someone who can. You're welcome to tell him I referred you to him for help. It won't get you any discounts, but it will help you break the ice.

Good luck!