All Forum Posts by: Account Closed

Thank you for the information.  The 505 and possibly 506(B) angles do seem to be interesting routes but will be in contact as things evolve.

Hey everyone. 

For the issuer of a security to a group of accredited investors, what exactly qualifies as 'reasonable steps' in verifying an investor's 'accreditation' status? Can the issuer for instance be held liable if he relied on an investor's statement that he/she is an accredited investor? Or does that issuer have a burden to actually take on verification responsibilities? (whatever these specific steps might be). Does requiring the issuer to nag the investor for financial statements sort of encumber to the process? any ideas here?

It depends on the deal as I am sure you already know. If someone asked me for 100% of $75,000 to fix and sell a home they bought in the 70's worth $300,000 today, would I give him 100% of the money? Would be crazy not to especially at today's hard money rate. Someone else might look at the same deal and say they still need some skin money.

There isn't a need to exaggerate risk to justify some of the excessive fees and requirements. A good deal is a good deal and a bad deal is always bad. There are just some deals where a 20% down requirement just does not fit. Some risk are perceived not real. 

If we take hard money out of the equation and look at the traditional mortgage market, some lenders are still stuck on a similar 20% down mindset and some aren't. Its an extreme form of pessimism. You take calculated risk. One size doesn't always fit all. It is starting to sound like most HMLs are asking for FHA insurance.

Although I usually don't find sufficient margins at auctions to warrant going that route for properties, I did find this discussion interesting and would like to know if there is a legitimate issue here with what was described -- having the LLC buy the property then selling the LLC. Usually when there are various loop holes and grey areas, thats like asking the investor to fill in the blanks. Why cry foul afterwards?

From what I gather and as strange as it may seem, it really appears the "circumventing" is really a form of "compliance". The investor went out of his way to sell the LLC to avoid having to sell the property.

So the question then is whether or not his profit did exceed the 20% of cost? This really depends on how technical you want to get with it. Couldn't it be considered "goodwill" in a strict accounting sense? Companies often pay in excess of what a particular company or its assets is worth all the time. 

If they really had an issue with this, I think they could easily exclude non persons (entities) from purchasing properties and the fact that in some circumstances, you could also negotiate the restriction out of the sale does tend to suggest this is not necessarily an absolute.

The material question here is whether there is a severe public harm that results from this? And can the investor offer a legitimate explanation justifying why he would have to sell so many LLCs that just so happen to coincidentally be in the business of purchasing government properties.

http://www.inc.com/encyclopedia/goodwill.html

Most of the HMLs typically hold repair cost in escrow, which seems like the industry norm. They typically release repair cost funding in batches. I think 40% of ARV is absurd -- grandma can take more risk than that.

By the way, I would say don't make haste to cast the rehabber as the prey here. Most of the horror stories that I often hear are about supposed lenders disappearing with what was supposed to be down payment/deposit money so when upfront money starts getting excessive, you have to be careful.

A certain Harbor Group is an example of such a company that did cause many members on here to loose thousands of dollars. Simply arresting them won't return the money.

http://www.biggerpockets.com/forums/92/topics/22247-fraud-warning-

http://www.fbi.gov/newyork/press-releases/2014/board-member-sentenced-to-10-years-imprisonment-for-his-role-in-10-million-advance-fee-and-gold-mine-investment-schemes

Is the money accruing interest while waiting for the redemption period to expire? If they somehow pay that tax off, that is a long time to freeze cash. 

It also seems like you can only get insurance for a building only after you have title to the building.

I think I see what your concern is. You don't know what other liabilities the LLC might have incurred hence don't want to get stuck with an undisclosed debt in addition to the property that you thought is just what you were getting.

It sounds like the issue is something that could be addressed contractually or through some other device where you could explicitly and specifically state clearly what interest is being conveyed along with the LLC, and could name the specific property (or properties) in question. You could probably also utilize the same device to declare what can and what cannot be passed along to the new buyer of the LLC.

To clarify a previous posting, are there any hard money or private lenders that would typically fund 100% of both the purchase and rehab cost on a SFR property?

An example to clarify..

Say the ARV on a fixer SFR property is $200,000. Seller agrees to sell it for $70,000 and the estimated repairs = $30,000. So both the total cost of both purchasing and rehabbing the property = $100,000 or 50% of the ARV.

Although most HML advertise they will fund up to 65% of ARV or higher, which in this case would be $130,000; some will actually only offer to fund 80% of both the purchase and repair cost (in this case $80,000) and require 20% or $20,000 down at closing from the rehabber. This would then mean the HML is only offering to fund 40% of ARV not the 65%.

Are there HMLs or private lenders that will fund 100% of both the purchase and repair cost of $100,000, which is below the ARV of $130,000?

I think there might have been some confusion in the initial posting. Meant that most of the advertisements from HMLs were 65 to 70% of ARV but based on the quotes, the loan to ARV appear to be in the 35 to 40% range.

In your case and in California, you appear to do up to 75% of ARV? So you can fund 100% of the project (both purchase and rehab) upto the 75% of ARV or do you also only fund both 80% of purchase and rehab cost up to the 75% of ARV? Do you also require the 20% down, regardless of the % of ARV that you fund?

Sorry Matt but most of what you wrote seem to be an advertisement of some sort and somewhere from marginally to almost completely irrelevant to the initial question. The somewhat overly defensive tone also doesn't help.