All Forum Posts by: John C.

My understanding is that a HELOC is like a credit card except that you are guarantying your property as collateral. On your personal residence I guess they could only freeze it due to consumer protection laws.

On investment property my guess is they can pull the line at any time. Read the fine print carefully.

Either way (freeze or close) such an action does not have to have anything to do with borrower.

I'd add that in a HELOC you only pay interest when you use the money.

Also it is my understanding that a HELOC is treated more like a credit card by the bureaus even thought it is asset-backed?

For flips not at all and from what I've seen can be a net positive (save on commissions, mls access, etc). Licensing may become a problem when you get to the more creative forms of buying and selling or holding real estate (subject to, lease purchase, and various other forms of "transaction engineering").

Sorry I must have missed something. To me a wholesaler was someone who had the wherewithal to close with their own funds or credit and often did so then resold with a reasonable amount of earnest money at risk (can be held in escrow with their attorney of course). Worst case any good wholesaler will have no problem teaming up with a hard asset-based lender to finance the transaction (could be a double close to save money of course). But only if the deal really made sense. If it didn't then they should walk away or look at other more creative approaches.

The folks you guys are speaking of as "wholesalers" I would call "bird dogs" or "transaction engineers". Putting houses under contract with "weasel" clauses and "and/or assigns". The problem to me is what happens if they are not able to perform after promising the moon and the stars to their seller who may be counting on them for one of their biggest life situations.

So the litmus test to me would be if a hard asset lender would be willing to lend on it. Nothing wrong with marketing a property that you have under contract (in my mind the Real Estate Board may disagree) as long as you have the ability to close if not able to find a buyer in time (which I'm pretty sure a judge would agree with).

I do believe some private investors may be salivating at the returns they see in the stock market so they may be moving more investment $$$ towards that arena. And yes due to rising demand it is harder to find a good deal. One must be able to pivot and adjust to the market.

Looks like we are in Stage 2 of Dave Lindahl's "4 stages of a market cycle".

Actually no the private investor does not have much to lose except time. At 68% LTV (call it 70% to keep it simple, cover legal fees, etc) the investor's only potential cost is time if they had to come in and manage/liquidate the project if things went South. The investor has a CoC return of 15% and the first and only lien on the property. Pretty secure position for a 15% return.

Money is readily available. Profitable, secure deals and the experience and contacts to execute them well - not so much. Many pieces to the puzzle.

Wow you are willing to give an equity partner 60% of the profit? Let's run the numbers:

Example:

Buy house for 200k

Fix house over 6 months for 70k

Total cost 270k

Sell house for 400k - 30k in seller contribuitons, holding costs, RE fees, etc

NET 100K

40k to you. 60k to equity partner.

OR

Borrow 270k at 10% + 2 points

Fix house over 6 months 

270k+18.9k to lender (actually call it 22k because lender will probably have extra junk fees built in) 

Total cost 292k

Sell house for 400k - 30k in seller contributions, holding costs, RE fees, etc

NET 78K

78k to you.

Then there's the PIA factor of having the equity partner stop by to "check on their investment" and present their ideas on how to do things, etc.

Of course the other side is you have to be able to make the monthly payments to the lender unless you negotiate that the interest be paid in arrears (when the house sells).

Since I've got a proven track record I've got guys proposing to partner up with me all day long. I'd consider it at 20% so it works out about the same but only on larger deals.

Having a credit partner for short term flips seems to be the way to go. Equity partners for longer term deals or much larger projects. Say you are buying a fixer upper apartment complex. Sure those numbers may work but I'd shoot for receiving a percentage of the net monthly rental income as well.

If you don't know them probably best to work with them as a credit partner. Everything clearly written out and closed with attorneys. Your rights and your "partner's" rights recorded in the public records via Warranty Deeds and Security Deeds.

K.I.S.S. (Keep It Simple Silly)

Of course there are other much wiser folks than me out there that put together syndicates and the like that may have other ideas. It's certainly possible.

Sure. Several of the GURUs teach this strategy. "By subject to and sell on lease option". 

What was the $1500 used for? Appraisals? Other "service" fees? Why did you not take the loan from them? Did they send you a commitment letter and you did not like the terms? Sorry there really is not enough detail in your post for us to be able to help you.

Michael kinda nailed it. Make sure it is a deal. Since you say you are new you should consider utilizing the services of a contractor or home inspector to examine the home with you. With the right person you'll learn a lot. Not sure how hot your market is but 'round here "inspection contingencies" are deal killers on potential high profit 1-4 unit investment properties. You'll need a 3rd non-interested party to discuss the deal with. With the agent "trust but verify"...

Additional thought. Treat real estate investing as a business. Stay away from using personal funds/credit (minus your upfront down payment which is your "skin in the game" - same as if you wired some cash over to a broker to play stocks). Use other sources of funding as far away removed from your personal finances as possible (commercial/portfolio/lines of credit on investment property, equity partners, etc). Even though it may cost more. IE: Say you were to invest in TSLA and they go under you just lose whatever funds you put at risk. Another bonus is another set of eyes. If you work with an experienced private/hard money lender or partner on your first couple of deals they'll obviously not participate if the deal doesn't make sense to them.