All Forum Posts by: Justin Webb

Quote from @Account Closed:

Quote from @Greg Strunak:

I'm currently in the process of negotiating a seller finance deal, and I'm seeking some insights from the community regarding what would be considered a fair amount of commission for the real estate agent involved.

The property is unique in that it involves seller financing, and I want to ensure that the agent is compensated fairly for their expertise and efforts. I understand that traditional commission rates might not directly apply in this situation, so I'm curious to hear about any experiences or recommendations you might have. Also looking for insight on a good loan servicing company.

If a real estate agent brought me a seller financing property I'd for sure pay 3% commission. I'm assuming they are representing the seller and I am representing me.

Greg,

I concur with Ken's advice. Based on the information provided, it appears the agent has presented you with an off-market opportunity. In such scenarios, a commission of 3% is quite standard, typically representing half of the usual 6% total commission allocated to the brokerage. This arrangement not only compensates the agent fairly for their services but also serves as a motivating factor for them to prioritize you for future off-market deals, potentially giving you an edge in the competitive real estate market.

When it comes to selecting a proficient lender, I have employed several effective strategies through my experience. Firstly, I recommend consulting with top-performing real estate agents in your locality. These agents usually have robust connections with adept mortgage brokers or lenders. The key is to identify those financial professionals who know how to get to  "Yes", and who are relentless in overcoming challenges to secure the most fitting loan program or lender for your needs. Their extensive networking, both regionally and nationally, is invaluable in navigating the complex lending landscape.

Secondly, engaging with local banks and lending institutions can be highly beneficial. Their intimate knowledge of the local market often translates into more adaptable lending practices, particularly within their geographical domain. This localized expertise can prove advantageous, especially in unique or nuanced real estate transactions.

Lastly, I encourage you to explore the forums on BiggerPockets, specifically those focused on private lending, conventional mortgages, and creative financing. Pay particular attention to lenders who are actively participating in these discussions. Their involvement suggests a commitment to the real estate investment community and often indicates they offer loan programs specifically designed to meet the needs of investors like yourself.

Quote from @Mike Levene:

Hi Justin, thanks for the well thought out response. I feel I am falling into the trap of the first time investor of falling in love with a deal and then trying to make it work. If my repair estimate is exceeded by $10,000 I should still be able to profit ~$20k on the flip but the BRRRR would likely not make sense anymore as I wouldn't be able to pull enough cash out of the ReFi (~$5k after holding costs, closing costs, etc.) I need to look at the numbers again and make sure this is a risk I am willing to take on but I imagine there are better flip opportunities that yield similar returns and may carry less risk as I am aware finishing a basement can yield all kinds of unforeseen issues.

I have experience as an HVAC technician so I am relatively familiar with the constraints of renovating near or around HVAC systems, how much space is needed if walled off, ventilation requirements, etc. but I am sure there would be other issues like needing a larger window for egress and needing to do a window well, needing a drop ceiling to cover pipes in an already short basement, etc.

Quote from @Bryan Chattelle:

does anyone have a sleer finance/ subject (not sure where my deal falls under) to contract template?

I am flipping a property and need to close by the 31st of this month to start work on Feb1st.set PP $500,000. $3500/month payments for mortgage and interest payment that i need to pay on sellers behalf. 4-5 month fix and sell time line. 

Bryan, send me a DM with your preferred email. It is for Texas so I would advise having an attorney look it over to ensure it matches the nuances of the state the property is in. The contract will at least put you in the ballpark.

Hello Mike, 

Reviewing your investment strategy and questions, it’s evident that you have laid a thoughtful foundation for your first property investment. There are several critical factors and potential risks you should consider to ensure a more comprehensive approach.

Regarding your math, it seems well-considered, incorporating key elements like repair costs, After Repair Value (ARV), and projected rental income. Nonetheless, the contingency budget is essential, as real estate projects often encounter unexpected costs. Verifying your repair estimates with a local contractor is advisable to avoid underestimation. Also, consider the potential for project delays, which could increase your holding costs.

When it comes to getting the property under contract, engaging an investor-friendly real estate agent is a wise move with the first couple of deals. Such an agent can offer valuable insights into the local market, assist in negotiations, and ensure that the contract terms align with your investment goals. While direct seller contact is an option, having seasoned representation can be particularly beneficial starting out.

In terms of overarching analysis, your strategy carries certain risks. Renovation, especially the basement conversion, might reveal unforeseen complications, leading to additional expenses and delays. Market volatility could impact both the property's valuation and rental demand, which are crucial to your investment's success. Keep an eye on the interest rates.

The benefits of your approach are clear. The basement conversion and overall renovation can significantly increase the property’s value and functionality. Additionally, having multiple exit strategies, such as flipping or renting, provides flexibility in response to market conditions or personal investment goals.

It's crucial to consider other factors as well. Conduct a thorough local market analysis to understand trends in property value and rental demand. Don't forget the permits to ensure all renovations comply with local building codes and regulations.

Lastly, do not overlook the closing costs and lending fees associated with purchasing and refinancing the property. These expenses can be substantial and should be factored into your overall financial calculations to avoid any surprises in your budgeting.

Best wishes!

Hi Greg,

When navigating seller financing, especially in the competitive realm of vacation rentals, your negotiation strategy must be pragmatic. Consider the first option: the 12% interest rate is notably high. In a climate where interest rates are already high, this figure can be a significant drag on your returns. Leverage current market rates (20-30 year) as a bargaining chip to advocate for a more favorable interest rate. The 15-year term with a hefty prepayment penalty, while providing a predictable long-term structure, binds your hands. A more nuanced approach could involve proposing a declining penalty structure, offering both parties security and flexibility. To be honest, this first one looks like the seller is trying to lock you into bad terms and penalize you for trying to get out. Either way, the seller will get a hefty pay-off.

As for the second option, the 25% down payment is substantial, potentially straining your liquidity. If you are able to pay this amount it may be better to stick with a conventional loan such as a DSCR. With an interest-only payment structure, tread cautiously; it depends on your end goal. I like short term I/O when I want to keep monthly cost down until I can refinance at a better lending rate. The problem is that I/Os dont build equity. If you're leaning towards a longer investment horizon, pressing for an amortization schedule that mirrors your financial projections is prudent (Again, look at the cash flow). Remember, in seller financing, your acumen in aligning the terms with market dynamics and your investment strategy, while maintaining clarity on risk exposure, is key to sculpting a deal that benefits both you and the seller.

Quote from @Mickey Scott:

Looking for tips or Insite on purchasing a house with creative financing in Florda near the Space Coast or Treasure Coast. I have recently accepted a new job working 50% remote and 50% at Hospitals near Broward County. I will be selling my home in June when our kids finish school and then relocate to Florida. Current Home is in Shepherdsville, KY outside of Louisville. Please reach out if you have any tips, realtors in Florida working in that area. We would prefer to move between Port Sant Lucia and Melbourne/Viera Florida. Thanks,

Hi Mickey,

While typically I advocate for retaining properties for rental benefits, selling can be the right move under certain circumstances. Your situation presents a unique opportunity to leverage seller financing, an advanced and creative technique that aligns with your needs.

Consider offering 100% seller financing for your Kentucky home. This method allows you to set terms that not only cover your existing mortgage payments but also provide additional cash flow each month. Importantly, include a term limit with a balloon payment – for example, a 5-year term. This condition ensures you’re not locked into your original 30-year loan, efficiently freeing up financial obligations.

Following the sale, the promissory note you receive becomes a powerful tool. You can use it to secure a loan, usually between 75-80% of its value, giving you the financial muscle to pay cash for your new property in Florida, in your preferred areas between Port Saint Lucia and Melbourne/Viera.

For example (I'm making assumptions):

Imagine you're selling your Kentucky home for $400,000. Originally, you had a loan of $355,000 with a current balance of $310,000 at a fixed 3.5% APR over 30 years. By opting for a 100% seller financing strategy, you're essentially stepping into the shoes of a lender, offering the buyer an opportunity to purchase your home without traditional bank financing.

1. Sale Price and Loan Terms:
   • You sell your Kentucky home for $400,000.
   • You offer 100% seller financing to the buyer at 4% interest over a 5-year term with a balloon payment.
2. Original Loan vs. Seller Financing:
   • Your original loan was $355,000, with a current balance of $310,000 at a fixed 3.5% APR for 30 years.
   • Monthly payment on your original loan (assuming standard 30-year fixed terms) is approximately $1,593.
   • Under seller financing, the buyer's monthly payment for a $400,000 loan at 4% interest (calculated as a 30-year loan but with a 5-year balloon payment) is approximately $1,909.
3. Monthly Cash Flow Spread:
   • The difference between your current mortgage payment ($1,593) and the buyer's payment to you ($1,909) is $316. This amount represents your monthly positive cash flow.
4. Balloon Payment Calculation:
   • After 5 years, the buyer owes the remaining balance of the $400,000 loan. The outstanding balance after 5 years (60 payments) will be approximately $364,814.
   • The buyer would need to pay this amount at the end of the 5-year term, typically through refinancing or other financial arrangements.
5. Using the Promissory Note for Financing in Florida:
   • The promissory note valued at $400,000 from the sale can be used as collateral.
   • Assuming you can get a loan of 75% of the note's value, you could potentially access $300,000 to assist in purchasing your new home in Florida.

This detailed scenario underscores the potential benefits of seller financing, such as generating additional cash flow and converting equity into liquid capital for reinvestment. However, it's crucial to note the importance of thorough due diligence and professional advice. The calculations provided are estimations and could vary based on specific loan terms, tax implications, and market conditions in both Kentucky and Florida. Consulting with financial and legal experts ensures that both the sale and the subsequent purchase align with legal requirements and your personal financial goals.

Quote from @Jonathan R McLaughlin:

Just a quick visual scan...

when I see the 3 big numbers in boxes (purchas, pro forma, anticipated) I immediately go..."who how is he getting from 1.5 to 2.8? Lead me to the water, don't make me go searching in the small print without the big picture

Assuming this is value add and you want to keep that format I would have another box along the lines of "total outlay" including rehab, holding costs etc. this can all be broken down later.

Great points! Let me go to the drawing board to figure out a way to make it presentable. Any examples? There is plenty of space at the top because the cover has the address and photo of the property.

I appreciate the feedback here and through DMs. Below is a screenshot of a different deal we are working but it incorporates all of your feedback.

-Justin

@Christopher Grobaker Perfect, thanks for the keen eye. Even the little things make a meaningful difference. Also saw that I left amortization on option 2. I/Os don't amortize since you ate not paying down the principal.

Hi BiggerPockets Community,

I'm actively working on structuring a few real estate deals and am in the process of revising my old funding packets for potential lenders, encompassing both conventional and private sources. Attached below is a snapshot of the second page from one of the current deals.

I'm reaching out for your professional insights to refine the presentation of this information. What are your thoughts on the layout and content? Is there anything crucial you think is missing? I'm particularly interested in your opinions on the Debt Service Coverage Ratio (DSCR) – does it make sense from a lender's perspective? Also, I've outlined some subordinate lien options; I'd love to hear if these would be attractive as funding options. With high rates, it's about maintaining cash flow but finding ways to still pay investors for money borrowed.

Your expertise and feedback would be incredibly valuable and much appreciated as I fine-tune this packet. Thanks in advance for your help!

-Justin