All Forum Posts by: Ken M.

Great post topic...I'm going to pop some popcorn and will be back for the show.

Just to get things rolling. Because it takes "an expert" to explain novation, avoidance of due on sale clauses, ignorance of state foreclosure rescue statues trusts, why you don't need title reports, attorneys or reserves, and don't forget to throw in the Garn–St. Germain Act as the interlude?

For clarity, the above is a bit of sarcasm.

I love a good creative financing transaction when done safely and ethically. There is a video (free on YouTube) by Attorney Jeff Watson titled "How To Do a Subject To And Do It Right" that I highly recommend.

Tracy: that was AWESOME!

Thanks.. except I misspelled statutes.... (but I like statues too).

I misspell myself, :-) but the statutes to concern yourself with are

12 United States Code USC Section 1715Z-19

and the

Consumer Protection ACT

and a couple of others if you are interested.

0 Votes

Quote from @Chris Seveney:

I frequently see sub2 deals on FB and other sites and out of curiosity I look at what they are offering. When I look at the property and the information what I am noticing is the "game plan" is as follows:

1. Find a property that is listed on the MLS.

2. Have that property be in default

3. Get it under agreement for less than asking price and offer to bring the loan current and have them carry that loan.

The way I see it is they are just getting MLS properties under agreement - the last five I looked at had been sitting on the market for more than 150 days (overpriced) because the payoff of the loan would not be satisfied at lower price point.

If this is what sub2 is, then why are people paying tens of thousands of dollars to learn this process? To me it seems like it could be taught in under a day? Its just a version of wholesaling with keeping financing in place? What am I missing (besides in some instances you have a lower interest rate but do not get clean title to a property)?

.
Actually, the way you describe SubTo can be called "equity skimming". Which can lead to mortgage fraud, wire fraud and banking fraud.

It's against the law in some jurisdictions (OR, WA, CA and others) to even approach someone in a distressed situation unless you are an attorney, a realtor, or a registered "Distressed Property Counselor" and you can't benefit by buying or wholesaling the property.

Equity Skimming and related penalties of sentencing are detailed in

12 United States Code USC Section 1715Z-19. These penalties include:

Five years in prison
Up to $500,000 in fines

Equity Skimming may also result in Conspiracy charges, specifically conspiracy to commit bank fraud and false statements to influence a financial institution. Penalties of these Federal charges may include:

30 years in prison
Up to $1 million in fines

They have a "statute of limitations" - (with a third "T" ;-) of 10 years from the date of the transaction - 10 years from now, you could get a very nasty call and hopefully, you put your reserve money in a good account that grew to cover legal expenses

**********************************************
And the universe could blow up as Doc says in Back to the Future " But, granted, that's the worse case scenario."

The $10,000 is better saved for legal defense.

0 Votes

Quote from @Quan Pham:

Hi all,

I'm in quite (to me) a difficult situation and looking for some insights.

I'm buying a new house $1.2m @7.2% interest, and my current house is worth ~$780k @3% interest. I've managed to secure the loan for the new house without having to sell the old house first. Now I can't decide what to do next.

1. I could sell the house and pocket ~$360k (after the tremendous agent commissions T_T ). I can then put that back into the stock investments that I sold to make down payment for the new house with some left over. The left over would cover the difference in monthly payment for about 2 years. Then my passive income would solely come from stock investment.

2. I could keep the house and try to rent it out. Rent analysis is around $3400-3500/m which will net me $1200-1300 cash flow if self-managed. I picked up the book " The Book on Managing Rental Properties" and it both clarifies and scares me. I'm the single breadwinner for my family (2 kids) so I don't know if I'd have the time and energy to both run this rental and manage my work so I can reach the income level to handle the bigger mortgage comfortably.

I feel like this chance for us to have a rental property with positive cash flow won't come often so I really want to explore it. Is it a viable option and what could I do to increase my success rate when taking this opportunity?

Thanks.

If we were friends and I wanted the best for you I'd say "Dump it, it's Seattle." Since I don 't know you and we will never meet, it doesn't really matter what I think ;-)

0 Votes

Seattle, Washington

Quote from @Scott Trench:

I know that anytime Trump's name is mentioned, someone gets triggered. Either the post is too anti-Trump, or too Pro-Trump.

Let me be clear - I do not condemn Trump's policies or necessarily know whether they will be positive in the long-term future or not for real estate investors. Further, "Downward Pressure" may be "bad" for investors, but it may also be "good" for renters - his policies, if I am correct, may negatively impact housing prices and rents, to the detriment of investors and to the benefit of renters, in the near-term.

"Positive" or "Negative" impacts are relative. I write from the standpoint of a real estate investor, and I perceive Trump's actions to be threatening to near-term real estate investment returns, on the whole. I believe this because I think that on the whole, his first two weeks of actions are likely to:

- Have zero no impact on near-term supply (deliveries for single family and multifamily homes 2025 are a result of actions put into motion several years ago)

- Put upward pressure on interest rates: Trump's demand that the Fed lower rates will have absolutely no effect, other than providing a cheap source of easy social media clicks and engagement for real estate pundits. However, the implementation of tariffs, or just the threat of tariffs, is likely to influence rates, by impacting inflation numbers, and this influence may come quickly if prices for many common goods and services and raw materials rise in anticipation of tariffs, or in response to their implementation.

- Put downward pressure on demand: I personally believe it is unlikely that Trump actually deports millions of illegal immigrants who have settled in the United States. This, to me, seems impractical, and a PR nightmare. It's possible he carries it out, but I believe it unlikely. I believe it is far more likely, however, that the effect of his stance and actions materially lessens the flow of new illegal immigrants. This will slow new demand for rentals. In the event that any meaningful percentage of 10-15 million (estimates seem to vary widely depending on which news source you prefer) current illegal immigrants are deported, real estate investors will have a big problem as vacancies soar. It is likely that a huge percentage of that 10M-15M illegal immigrant population are renters. Regardless of whether investors currently rent to illegal immigrants, their competition in the market likely does.

- Put Upward pressure on real estate operating costs: Increased costs for raw materials and supplies, and the likely increased costs for labor involved in many real estate related CapEx and maintenance projects signal the risk of increase in costs for real estate operators.

If there is no impact on near-term supply, a modest slowing of inbound (illegal) migration, more reason to believe that the cost of many goods and services will increase, and real reason to believe that inflation triggered by something other than an increase in the money supply (namely the cost of specific goods and services that are NOT housing going up, which comprise the CPI) will force the Fed to raise rates, this, on the whole, is not good for real estate investment returns.

No, I do not think that there will be a housing crash or a massive drop, nationwide, in rents and prices. Yes, there will be offsets (do Tariffs and slowing illegal immigration increase wages for some workers - likely yes). But, I believe that the actions of the first two weeks should give investors, on the whole, reason to incrementally revise down their expectations for growth in prices or rent growth in 2025. There may also be incrementally better probability of deals, as investors who are dependent on rates coming down may find their hopes disappointed.

I think 2025 will be, by and large a buyer's market, and that the new administration's policies only, and again incrementally, make me more confident that this will be the case.

What do other investors think? Do you agree or disagree?

Keep in mind that most illegals are / were given free housing in hotels, group homes and many families living in the same space. They are not / were not instrumental in prices going up or responsible for the housing shortage.

Builders just haven't built enough houses to keep up with natural growth. A lot went out of business.

I think the Trumpster says what he means and means what he says. I can imagine there will be free transportation for any illegal that finds it in his best interest to head back to wherever.

It's only been two weeks, wait until the machine gets churning and things like dedicated passenger trains to the border are available & deporting more.

I think the most effective arguments Trump has, is that since many of the folks are very loyal family members, they will self-deport when grandma or grandpa are deported.

And, if they are told they can not reenter the country, for 20 years or so, if they don't self deport, with a permanent bar if they get deported. I believe that's an effective message.

And if the government removes the app that the illegals use to get food, shelter, money and legal advice, then it becomes a whole new ball game.

Regulations are slowing building down. And what I'm seeing is that many would be sellers think it's still 2022 when prices were higher. It will be a year or two before they emotionally catch up to reality and list at reasonable prices.

1 Vote

Denver, Colorado

Quote from @Ben Callahan:

Hey all. Just curious, could someone purchase, say a triplex, using a FHA loan, rent out two of the three units, retaining the third unit for yourself, but not actually live in it? Is that acceptable from the FHA perspective or do they want you to actually physically live in one of the units for the year?

Yes. they do expect you to live in the house. As per the agreement.

1 Vote

Quote from @Don Konipol:

Quote from @V.G Jason:

Quote from @Don Konipol:

Quote from @Shiloh Lundahl:

I'd love to get some feedback and hear your thoughts on the investing model that I am planning on ramping up this year.

Let me give you some background for context and to help you understand why I am moving in this direction with investing this year.

I have been investing in real estate for the past 15 years but more actively for the past 10 years. People started to ask me to help them learn how to invest so I started coaching new investors over the past 7 years on how to start investing in real estate. I would charge them $5,000 with the ability for them to earn back $2,500 and I'd have a call with them every other week to guide them on how to find deals and money lenders and how to get the properties fixed up and get them refinanced, etc. About 90% of my coaching students bought properties and increased their net worth on average of $100,000 the year we worked together. A mentor of mine told me that I was charging too little for the amount of value I was providing. So I increased my rate to $10,000 with the ability of my coaching students to earn back $5,000 if they completed their homework in betweeen coaching sessions that was geared towards helping them meet their real estate goals. The results of my students were about the same and they would create about $100,000 of increased net worth during the coaching program. My mentor told me I was still charging too low for the value I was providing.

Towards the end of last year, one of my buddies contacted me and told me his accountant told him that he needed to buy some real estate to lower his tax bill. I shared with him some ideas on how to buy undervalued real estate and he basically told me that he would rather just partner with me and provide the money and have me find and manage the investment and then split the profits. So I found and purchased 3 undervalued properties from wholesalers and we are just finishing up the 3rd one. Each property is estimated to create about $70,000 of profit over the next 3 years. He has deposited $100,000 into the business account. That covers the down payment for the purchase, the rehab, and the $18,000 for reserves for the account, and $5,000 for me for each property for the time and work involved. That $5,000 is part of my portion of the 50% of the profits and will be deducted from my payout when the property is sold.

The property will be rented out on a 3-year lease option and will be either sold to the tenant buyer or sold on the market if the tenant decides not to exercise the option.

The money partner on these deals will bring in about $35,000 to $50,000 for each deal and the expected IRR is around 25%-35% each year for the 3 year period essentially doubling their money in 3-4 years.

So rather than focusing on picking up a couple of coaching clients this year, I think I am just going to focus on finding money partners to buy deals with. I already have the knowledge, experience, and systems in place to do about 20 properties this year. So I think I am going to shift my focus away from coaching and more towards partnering.

I'd love to get hear some of your thoughts and get some of your feedback.

Lots of interesting feedback - but even if I didn’t feel the OPs offer to passive investors was great - I wouldn’t think it EVIL - which seems to be the opinion of some responders……

Key point for people evaluating the “fairness” and “competitiveness’ of the offering is that the sponsor is receiving too much benefit for too little contribution. The THING they seem to not be taking into account is that the sponsor is responsible for one half of any losses. This brings a much greater liability into play, and in my opinion provides greater balance.

Is this offering the best “deal” for a passive investors? Probably not even close. Is it the worst deal? Again, not even close. Basically what we have is a pretty “average” real estate opportunity investment. There are a lot more dangerous, and horribly structured investments being offered every day.

I can see this investment fitting into an investors portfolio of the investor meets and has contact one on one with the sponsor. This brings us to the question of scalability.

Again, in my opinion this model doesn’t scale, beyond a point that is reached sooner rather than later. There are many reasons. One big one is that scaling the lease option sale to a homeowner will attract both public regulatory scrutiny and private litigation, perhaps class action, once it reaches a certain threshold. And the cost of legal defense , even if successful, will drive the company out of business.

I never said evil, but you can exaggerate and say that. I can say without a doubt that you've had your hands in the cookie jar on some partnerships that would be deemed as predatory, too. And because of that, you're putting a disclaimer before analyzing Shiloh's deal just to make sure the crumbs don't appear.

For the most part, you agree Shiloh's deal isn't that great. And it could fit a unique investor. And I agree, an investor that does zero diligence, doesn't value capital, and wants to find a structure that's RE related but not REITs, the debt behind it, syndications, etc. This could be perfect for them.

I still fail how to see it defeats the options that I provided, or leans towards a better passive model or even a "partnership".

I think the best suggestion in this thread is actually from @Josh Young where @Shiloh Lundahl should seek debt partners. Now that's a way to go. Secure the debt by real estate, now we're talking a great partnership deal. That way someone can have "passive" exposure through the debt, yet still have RE exposure in some form or fashion. Giving up 50% equity on a value add in today's environment is just too much to give up without a significantly better return that's not offered through almost any other asset class.

“ I can say without a doubt that you've had your hands in the cookie jar on some partnerships that would be deemed as predatory, too”

V.G. Jason, or WHOEVER you really are (your BP page gives absolutely NO information about you - typical for those “keyboard warriors” who spend their time trying to “get even” for the bullying they endured during childhood)

Your tactics are reprehensible, reminiscent of Wisconsin Senator JOE MCCARTHY. You’ve made an accusation, used it to imply that I’m covering something up, and provided not even an example, evidence, foundation, etc. for your outrageous claim. Put your “money where your mouth is”. Since you can “say without a doubt” then you must have , at your fingertips, evidence that I’ve “had my hands in the cookie jar on some partnerships that would be deemed predatory”. And since your life, such as it is, consists of responding to every BP post mentioning yourself within 15 seconds, you should have no problem responding within the next, say, 1 hour with your “evidence” to back up your slanderous remark.

I’ve come across more than a few like you in my 45 years as a real estate investor. And those who are argumentative, bitter, accusatory, slanderous, and addicted to drama are ALWAYS putting on “bravado” to cover their singular lack of success in business, love and life.

You are a BAD MAN, V.G. Jason, a very bad man. (As counsel for the Army told Senator Joe McCarthy during the conclusion of the Senate Committee on UnAmerican Activities Hearings).

@V.G Jason: Normally I don't butt in on someone's post, who's intent is to demean another man, such as you've attempted but failed to do with @Don Konipol: who has made a very positive name for himself, buy the way. But you have piqued my interest.

Since you are in Miami, oh yes, we know. But you fail to properly (and hospitably ) introduce yourself and you have an obsession for privacy and self protection with multiple layers of LLCs and twisted ownership, why would you expose yourself to lawsuits to simply be mean? It makes no sense at all on a level a decent man can think of. We here in the south value manners and being polite.

What is it you are lacking? Human empathy? Self control? Proper Manners? Is business for you that bad? Or, do you believe you are way above all of us who freely give information and yes, have an opinion on a forum anyone can join?

Perhaps if you provided your identity and some of the projects you have successfully completed, we would have a reason to consider your opinions. Right, now, none of that honor exists, except in your own mind.

1 Vote

Gilbert, Arizona

Quote from @Mike Romano:

Hey everyone,

I have a buyer ready to submit a full asking price offer on my flip, but the 90-day flip rule wonâ€™t be lifted for another two weeks. I really donâ€™t want to lose this buyerâ€”whatâ€™s the best way to make this work?

Would it be a good idea to take a deposit to secure the deal until the rule clears? Or should we sign the contract now and set the execution date for two weeks later?

Any advice or experiences with this would be greatly appreciated! Thanks in advance.

I am guessing you have an FHA loan on the house and the new buyer will be purchasing with an FHA loan? Just have the buyer do the inspection before making the offer. Make sure the buyer will go through with the sale before you worry about the timing. If one of you does not have an FHA loan, what is it you are trying to accomplish? If a better offer came along, would you accept it?

0 Votes

Orlando, Florida

Quote from @Joe Villeneuve:

Quote from @Joe S.:

Quote from @Joe Villeneuve:

Quote from @Marcus Auerbach:

@Joe Villeneuve - ah I see, basically you are optimizing for ROE - return on equity. Makes sense. You could also hold it and refinance to avoid selling and access the equity gains.

Not the same. A refi only moves part of the equity forward and usually produces a higher mortgage payment because the principal is larger, so the cash flow goes down too

Brother Joe…..

I take the time and try to read your post as much as possible. :-)

I follow your logic… I think.
So a person will leave some of their equity in a property if they do a refi. It seems to me that a person would lose part of their equity on a sale as well. I’ve had some refinances that went through where the appraiser appraised the property for way more than what it would’ve actually sold for on the open market. So in a case like that a refinance would have worked better than simply a forced sale IMO. 🧐🤔🤓

Timing has a lot to do with it. I've always sold for more than I could have gotten out with a refi. Don't forget the other problem with a refi...the higher mortgage payment, generating a lower cash flow.

Aren't there taxes to be paid on a sale, which you don't have on a tax deductible refinance;-)

1 Vote

Milwaukee, Wisconsin

Quote from @Cloey Green:

Ok, thank you!

What state are you in? You just go to a search and put in
"Nebraska Attorney General Complaint" for instance if you are in Nebraska. They are free and they want to know when there are problems that affect the people of the state. Some TV stations handle that kind of thing too. They have someone assigned to "Consumer Complaints."

0 Votes

Quote from @V.G Jason:

Quote from @Ken M.:

Quote from @Steve K.:

Quote from @Erika Andersen:

Update! Finding an RE buyer agent to work at an hourly or fixed rate was hard - although contrary to what a few folks mentioned here, those options are listed on the standardized Colorado contract. In the interim, I found a house, negotiated 2.5% off the listing price, and we're under contract! I attended the first open house and requested a showing by the seller agent with my husband present.

Here's why I think my process worked:

1. Denver is a buyer's market - houses sit for a bit (one month plus). Two years ago, this approach would not have been an option.

2. Narrow focus - I know the zip codes I wanted to purchase well. I wanted to be within a less than 20-minute radius of my mom. Also, hyperfocus helps me find a home with the right conditions - a stable but increasing-value neighborhood. An older house that had already been flipped (2022) -- all new appliances, remodeling, good floor plan. The exterior is a bit sad - which worked to my benefit. It didn't yell "cute" in the Zillow picture, but improving curb appeal won't be a huge investment. Plus, the buyer needed to get rid of the house quickly as she was getting married and moving - her list price was 5K over what she had paid in 2022, and she had made improvements. I knew she wouldn't want to come down too much --- so she got the same net, and I saved 2.5%. I'm happy - the floor plan is exactly what I was looking for - tri-level 4/4- which is hard to find in the price range I wanted. House went on the market 1/17- we were under contract @ day 14.

3. Not a rookie - While I have never purchased a home without an agent, I have purchased two homes in the last fifteen years in Denver and, at some point, managed both with some form of rental income, plus helping my mom manage the independent basement apartment in her home. I also put my good student skills to use in understanding comps, etc. Fortunately, those skills can be generalized from one profession to another.

4. Luck - Colorado contracts are straightforward.

5. Support - I hired an RE attorney @ $350 hourly. I also filled out the contract to minimize the fee, and we reviewed it together. Also, my husband has experience with contracts and helped with researching information I found difficult. Overall, the process was easier than I had anticipated.

6. Privilege - We don't have contingencies. We are keeping our current house as a rental. I have a flexible schedule and was able to put in the time.

My takeaway: - I would definitely hire an RE agent as a seller. However, the next time I buy a house, if it's a buyer's market and I know the area I want to purchase well, I'll repeat this process if it's in a state with straightforward contracts. I learned a lot, feel more confident and am pleased with the outcome.

Here's what rubs me about this situation: the market has gone down since 2022. So why would you pay what they paid then? Like you said, it was a strong seller's market then with steep appreciation, multiple offers, way over-asking price offers, escalating clauses, appraisal gap coverage, buyers waiving all contingencies, etc. It was crazy. Most people who bought in 2022 overpaid. The tables have turned and it's a buyers market now with values flat or declining, much longer days on market, price drops, listings expiring, very rare to see full price offers on new listings, etc.

So why would you pay even close to what they paid at the peak of the market in 2022? Even with having made improvements, anyone selling now who purchased in 2022 should be expecting a loss. You basically made a full price offer when you didn't need to. That makes no sense. Never pay full price in a buyer's market!

Let's compare this to a deal we did last week: Seller had purchased in 2022 and listed the property for around 5% more than they had paid in 2022 (there are a lot of highly unrealistic/hopeful sellers like this currently who overpaid in 2022 and need to sell). They had no other offers so we offered 30% under ask. They countered and we met them in the middle at 15% under, and then negotiated an additional $15k off during inspection, so total discount was around $150k off list price/ what they paid in 2022. Seller had also made $100k in improvements btw. We also got them to have it professionally cleaned, ducts cleaned, they threw in some furniture for free, paid a lot of the closing costs that buyer usually pays, paid most recent mill levy instead of prior years taxes, paid my 2.8% commission, etc. because it is a buyers market and that's what you can negotiate in a buyer's market. This is a more typical deal for the current market, and what yours could have looked like if you had someone who knows what they are doing representing you.

This is typical of what I see when buyers or sellers "go it alone": the unrepresented side gets the short end of the stick every time. They often think they're getting a good deal and tell their friends they got a good deal, when they really left money on the table unknowingly. I've seen buyers leave $500k on the table and tell their friends they got a good deal by not having an agent involved. Filling out the contract etc. is not that difficult but without being active in the market every day and having expertise that comes from doing deals all the time, beginner mistakes like this are going to be made and money is going to be left on the table every time. It's no different than anything else that people try to DIY: it can be done but beginner's mistakes will be made, the end product usually isn't as good as a professional would have done, and it usually takes longer and costs more.

Frankly, this seller is really lucky you came along and were willing to overpay by 10-20% in order to "save" 2.5%. If it had been my client buying this property, they would have paid a lot less even with the full commission factored in.

It seems like the property works for you at the list price and you're fine with what you're paying, so that's great. But don't kid yourself by thinking you saved any money here by representing yourself when you are overpaying compared to what most buyers are currently paying.

Savvy buyer's agents look at stats like sold price to list price ratio trends and watch specific properties to see what they sold for compared to what they were listed for to really understand the market and make offers accordingly. You clearly misread the market here and could have done a lot better IMO. Good learning experience for you, but better to learn by working with a good agent and saving money until you have done at least 10-15 deals, rather than learning by making mistakes and leaving money on the table IMHO.

@Steve K.: is exactly right "there are a lot of highly unrealistic/hopeful sellers like this currently who overpaid in 2022 and need to sell"

A competent realtor adds the value of "and then negotiated" which is the most important portion of he transaction. The other parts can be pretty much learned from reading or watching videos.

So really, you should be looking for two things from your realtor
1. A realistic understanding of "today's" market and
2. Good negotiations skills. (not letting emotion decide how much your property is worth")

Ideally, yes.

But let's be honest-- most agents don't care about getting their client the best deal, but just closing the deal particularly on the buy side. How many agents do you see now that follow those 2 rules?

And then if they are, they're actually willing to do the back & forth negotiations require.

.
I agree, and That's my point. They don't deserve my money if they can't perform those tasks.

1 Vote

All Forum Posts by: Ken M.

Ken M. has started 14 posts and replied 283 times.

Post: Subject To / Sub2 - Is it really just this?

Post: Subject To / Sub2 - Is it really just this?

Post: Stressing over what to do next

Post: Trump Policies Will Put Downward Pressure on Real Estate Rents/Prices

Post: Do you actually have to live in the house?

Post: New Partnership Model

Post: Navigating the 90-Day Flip Rule – Need Advice!

Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Post: Is Pace Morby a Scam?

Post: Advice on working with a home buyer's RE agent using an hourly rate?