All Forum Posts by: Kyle Altenau

In NJ it's typically very different. You need to leave 10-20% down after winning the bid, but then you have 30 days to close, which is plenty of time for hard or private money. I've bought a few in Philadelphia and it's 30 days there as well. I didn't realize some places had such quick timelines. That's crazy, but on the bright side for you, it takes a lot of buyers and competition off the table. So maybe what you're losing in cash flow/liquidity you gain in opportunity. 

Are you presenting a deal? I think one thing people overlook when bringing a deal to a loan officer is the importance of presentation. You should always have some kind of loan summary/loan request to send them. You'd want information about the property and about yourself as well as some terms you're looking for. You should also have income and expenses prepared for the property as well as anything else that might be relevant. 

Really you should know the deal inside and out. For example. Where did you get the number on income and expenses for the tax expense? Did you verify that's correct? 

Or did you verify the rents with leases? It's okay if you're not at that point in the process yet, but noting something like "rent roll is pending lease verification" or something similar is a lot better than answering the question with something like "not yet" 

Same with the taxes. You don't have to be completely done with your diligence, but being able to say, I request or plan on requesting X to verify makes you look a lot better than just saying no. 

Essentially really pick apart your deal before presenting it so that when someone else picks it apart (which is their job) you are ready for their questions. 

@Anthony Dadlani where have you been doing the auctions? I've closed plenty in NJ. I'm not sure if NY state may have additional hurdles which makes it prohibitive there. I know in Philadelphia there's some additional rules (it's been awhile since I looked into it) which makes it impossible to get a lender's title policy for 3 months if I remember correctly. 

How have you structured the auction deals in the past? We're you given unsecured money ahead of the auction? I've closed a ton of deals from Sheriff sales, but it was more or less structured the same way as any purchase. The borrower would have to take the risk of putting the money down at the auction, then I would do my diligence/underwriting. I wouldn't make any commitment to funding until I received appraisal etc. 

If you're fine structuring it that way, most hard money lenders/private money lenders should be fine with it. The one caveat would be logistics of the Sheriff's office, and this is where it's not like a typical sale/loan process. Depending on what county you're in the rules may differ. I just closed on in May where the Sheriff was telling me, they would not deliver the deed until 15 days after they received the funds to allow it to clear. From a lending perspective that can create a few issues. Am I insured by title at that point? Or am I only insured once the deed is received? What if the deed was done incorrectly? Am I insured while they fix it or only once they deliver the correct deed? 

Just an example of some of the concerns. Planning properly and asking these questions up front can save you. Luckily we had this conversation together with title and the Sheriff's office weeks ahead of the closing date so we had time to explain the significance of certified funds (which wasn't as easy as you'd think). In the end they ended up agreeing to deliver the deed right away if there was certified funds. There ended up being a mistake on the deed, but we had crossed that bridge with title prior to closing and we were insured regardless. 

Basically. Make sure you understand how each Sheriff office works as it can vary county to county. Make sure you work with a title company that is investor friendly and is familiar with financing Sheriff sales. Lastly, if possible, work with a lender who is familiar with the structure as well. 

That's part of the negotiations with investors. It also depends how the deal is structured as well. Are they part owners of the property or did they lend you the money? 

They could be part owners with a 10% preferred return. At that point, it's still up for negotiation. Some deals are structured with the 10% being accrued, so they do not get paid anything until there is a capital event that triggers it (refinancing or selling the property for example). You can also do a split. For example, 5% accruing and 5% deferred. In that instance you could be paying monthly payments at a 5% annual rate, while the 5% accrues annually as well. Or you could be paying 10% annually with monthly payments the entire time. 

If it's a loan, I'd say the most common would be monthly interest only payments. But some loans, especially in cases of private lenders, can allow for all of the interest to accrue until there is a capital event. And again, you can do a split as well. 

I think this is something you may want to speak to an attorney about. It will cost more, but it will iron out all the details. If these are friends or family, I find that it's even more important to have all the details air tight. The reason for that being to protect both parties that much more from any misunderstanding because of the personal relationship.   

When you say your friend is contributing capital to purchase a plot of land, do you mean they are purchasing the plot and owning it themselves? Are they contributing the capital to the developers to purchase? That's an important distinction. Is this development an assemblage? Or are these separate lots to be developed as single family homes on their own lot, but in one development? 

Is she paying the developer out of pocket for construction fees related to her property? Or is that something that the partnership as a whole is covering? 

It's a little vague, but it's definitely something they'll need to engage an attorney for. These things work out fine with "hand shake deals" but whenever there's issues (which is almost always in RE development) you find out how quickly the devil is in the details. It sounds like the best option is to just create one ownership LLC if it's a true partnership. Then they'd have their own LLCs as the owners of that LLC. You'd need to make sure she has an attorney that represents only her thoroughly go through the operating agreement.

The other options would be to structure it as GP/LP, or maybe some kind of hybrid mezz deal, but again, she'd need an attorney for those structures as well. 

@Joe Young it's not a matter if hard money is allowed in your state or not. It's the fact that this isn't an investment purpose loan, so technically you're only supposed to go to licensed lenders for it. It doesn't matter if it's a hard money lender or private, and doesn't matter if you own it in an LLC or not. That's at least how we were always guided on by our attorney when underwriting hard money loans in the past. It's the purpose of the loan, which in this case is not investment purposes, which is the part that matters most.

Most lenders will have you sign an affidavit of non occupancy as part of the loan documents as well, so again it wouldn't matter if you owned it in your name or LLC.

But I think you're right in that a private money lender will be more lax with the ownership situation. I think they'd want you to transfer it to an LLC though.

Looks like a great property. Good luck!

Lots of good points here, but the one thing I am seeing that is missing is that you intend to occupy the property once it's complete. A hard money lender won't be able to lend on primary residence. Even if you don't currently occupy the property, if the intention is to use their funds for what will be your primary residence they're technically not allowed to lend on it. 

In addition to what @Steve Morris said, ask what the actual loan criteria and qualification is like. I know a lender that used to offer 100% financing on deals. They were up front about the requirements though. I believe it was 10 documented deals in the past 3 years, a higher than usual credit score, and of course elevated pricing. The loan was capped at 65%. So if you think about it, 65% of the value will limit the amount of deals that qualify right there. If your deal ends up at 70% you'd just have to bring the additional 5% to make up for the pitfall, but then you're not getting 100% financing but still paying for it and better off just putting extra money down. I think a lot of people got in the door that way, then wound up with more traditional deal structures in the end. 

A major flag to look for would be up front fees. There should not be any big fees due before closing in reality. Some may have small fees to cover things like running credit/background etc. but most bigger lenders don't charge up front for things like that. 

Definitely ask for their full lending criteria. None of those terms mention what qualifies for the loan. Also ask for a term sheet or if you're not at that point yet, a list of fees associated with the loan. 

@Tyler Abraham a team member in my office has been working on some cannabis deals with some success. If you'd like, message me your email address and I can introduce you.