All Forum Posts by: Kelby Schimming

Please poke holes in this.

I have a single-family home that is sitting on two lots and one of the lots is empty...both lots have the same address. I currently owe 85k on the address.

I want a private lender to lend 100k for 1 year so I can affix a mobile home on the empty lot.

My plan is to get the 100k, affix the mobile home to the property, and then get a HELOC on the property. I would aggressively pay off the 85k before the year is over...this would allow me to get the HELOC so I could pay back my private lender.

I want to present this to a potential lender, but I want to get some opinions on my plan prior to having the conversation. I also know he will want some security on the loan, so I am curious to how I can give him that...I figured second position on the property would be the best way.

How do I go about putting my lender in second position on my property? 

Is there another way to offer him security/collateral? 

I want to make this as simple as possible. 

I like to refer to the rates on a Certificate of Deposit (CD). 

Example: 

If CDs are offering 4% interest, then your offer to the seller should be equal to or greater than 4%. If I was the one selling/financing the property, that would be my perspective. I'd need a reason to invest in you rather than a CD. For me, my reason would be "I'd rather make 5% on my money than 4%" However, every seller has their own perspective and different things that motivate them. 

If ROI motivates them, I would share an illustration that simply shows them the benefits of seller financing rather than investing in a CD. I would highlight the pros of the installment sale and the higher return from seller financing.

Figure out what motivates them and use that as your basis. 

@Andrew Postell Thank you for the feedback...I appreciate your baseline comment as you really can't do anything effective without a baseline, I'll start there and see where that takes me. Thanks again. 

@Christian Ehlers I appreciate your feedback and thank you for providing a number. I like your comment that references Chris Voss's book. I recently read that book and have put together my summary, known facts, labels, and all that good stuff. Been doing the role playing he recommended as well. Anyways, thanks for your feedback!

@Jay Thomas I appreciate your feedback and your recommendations. I think the bank loan will be a more difficult process as they are more stringent and require a lot more than private money will. After getting feedback from you and others, I think the best route would be to seek private money and offer something in collateral. This way is more expensive, however, it can open the door for more opportunities in the future. Thanks again for your feedback.  

@Sam Yin I appreciate your feedback and understand where you are coming from. The ease of paying the loan back comes from the margin between the IO payments and the NOI. Yes, I know this margin is not always the same, but I have conservatively run some numbers and figured 3 years solely based on that monthly margin. I also know the numbers on the T12 are most likely not entirely accurate...I have already discovered the property taxes have gone up a lot since the previous year. I am doing my due diligence and posting on BP is a part of that process. Folks like you and the others who've replied to my post, bring value through different perspectives that help me get a better understanding of what I am working with it.

The 100+ properties are currently run by the owner's daughter who seems to be doing a good enough job to keep it afloat, but not good enough to optimize the portfolio. Example, they use the red "for rent" signs when they have a vacancy and post it on Zillow. There is no branding or company website. There is a lot of opportunity for improvement just through property management. My first step would be to hire a professional property management company and have them help to improve the items I listed above. I think leaning on them will help me mitigate the learning curve involved. 

I appreciate your insight and the feedback you've provided. 

 @Andrew Freed, I appreciate the feedback. Considering this is my first large deal, I want to keep it as simple as I can. Yes, I did not provide too many numbers as I did not want to bog down the basis of my question. Thanks for highlighting stabilization costs though, I want to be sure I have my ducks in a row before I start talking to potential investors.  

@Chris Seveney I did not want to get in the weeds with the numbers and bog down my question. The reserves would be a part of the loan. It is my first deal in multi-family. 

Numbers are coming from the T12 - there is a large margin between NOI and the IO payments. I'd bank this margin to repay lender and save for capex and reserves. I would not pay myself; I want to build on the business and keep the money working.

I have not got to the point where I would verify leases, get appraisals, and payment history. I am doing some homework before I waste money or someone else's time. 

No capex projects are foreseen as there has been little to no deferred maintenance. 

Thanks for the feedback and answering my questions. 

@Jared Rice Excellent feedback. I appreciate you taking the time to type this out. I like your idea of getting them a piece of the business and buying them out once able. After some more recon, I may propose this to the PML I have in mind. Thanks for your input. 

BP,

I have a deal in the works and the seller is willing to finance. However, due to my inexperience, he is requesting a down payment around 300k. I will also need another 200k for closing costs. It is an off market $8mil portfolio. He has agreed to interest only payments for 5 years which would allow for significant cashflow that would be banked to pay off lender asap. I would be able to pay back the loan within 3 years easy.  

Could I get a bank to loan me the 500k? Is this something banks do? 

Or am I best off finding a private lender? If I find a private lender, how could I offer the lender security in their investment? 

Thanks in advance!