All Forum Posts by: Kyle Altenau

The kind of financing you're really describing here would be more transactional funding. Essentially you want closing to be A - B - C. The friend selling it is A, you are B, and the final buyer is C. I am assuming you want it set up this way so that A is unaware you are selling it quickly. Transactional funding is hard to come by and would typically be someone or a company you already have a well established relationship with. Two things about some other comments though. 

You mentioned you wouldn't want to go the hard money route because of astronomical fees, but over a short period, even a high interest rate wouldn't be cost prohibitive. If you had the loan amount of $500,000 for 12% and 2 points, your total cost would be $15,000. ($5,000 for one month of interest and $10,000 for the 2 points). If that's eating away at too much profit, you're probably overpaying for the property. I also may be biased, as I am a hard money and bridge lender. 

The other thing to keep in mind, if you did find transactional funding, it'd have even higher rates, but in this scenario, you'd most likely pay the loan off on day one so you'd get hit with minimum fees etc. Again, if it's going to make the deal happen and get you to the end goal of the profit, it should be worth it. 

How quickly do you need to close on it? If you'd want to send more information I can let you know what kind of options I could send you.

@Ty Dunse

Congrats on getting out there and finding a what looks like a really great lead. First and foremost, if it doesn't pan out, you're still miles ahead of other investors so don't get down on yourself. 

Second, like others had mentioned, the tough part may be your ability to execute on this. A few ideas come to mind though. 

The more traditional route would be trying to partner with someone. If you have access to any family members that have cash, you could put this deal together as a family. My first deal was funded by myself, my parents, my brother and uncle who all chipped in a little bit to get a hard money loan. 

Your second option would be to just wholesale the loan. If you're not set up to as a wholesaler it may be difficult and it's probably the least ideal situation. Typically you'd want to have established buyers lined up already and know that they'd be interested, before moving forward. I think that'd be your last step. 

A third and very out of the box option would be to go to the builder and be upfront about the situation. I can't really see why he'd want to do seller financing unless you were putting a large portion of money down. If he did he'd be giving up the upside but keeping all his risk (it's still his cash in the property). If he's an active builder/investor in the area, there may be some other ways you could work together. Worst case scenario you've made yourself what could be a valuable contact. 

@Pablo Ramirez it is also important to note that in most cases, if you did quit claim deed into your personal name after closing with a HML, you'd be in a technical default. I'm not a lawyer, but a HML. The lender may never notice but a few things could trigger them to see it.

1. If you have a construction escrow, lenders may do a title run down before releasing any additional draws. They would see when they get that back. 

2. If you had any late payments or exceeded maturity, many lenders would want a run down and see it here. 

You'd be in technical default which they wouldn't necessarily act on, but may. It could also have a negative impact on your relationship with the lender, which can be really important in this space. 

Congrats. I'm curious. Are you concerned about the NYC market at all? I live and do most of my work in the Monmouth County, NJ area so I keep hearing how people are looking to get out of cities in the post Covid world. I wonder though if that's something that newspapers pick up while actual people on the ground are seeing a completely different story. 

I've been working in the hard money and commercial bridge lending space for about 7 years now. I've had great success in expanding my network using BP and LinkedIn and doing in person networking events in my area. It seems I've only really expanded my network of competitors, borrowers, and vendors through these channels. It seems like the AAPL would be the best option for expanding my network on the more financial side of the business. I was wondering if anyone here has experience with the organization and if they'd recommend. 

Thanks

If the property has cash flow and you're getting income from your other properties you shouldn't have too much difficulty getting a commercial loan. I'd be pretty confident you'd have options under 6% interest. 

I'd recommend using hard money to stabilize the property then refinance. A lot of lenders now are also pretty flexible with seasoning requirements as well, so if you buy right you should be able to get your down payment out. 

@Rhea Goldsmith unfortunately Asbury city hall hasn't been very helpful. I am going to keep trying. I don't know what they expect people to actually do. I think a temporary CO across any new move ins is really the only thing that can be done. People need to be able to move in. 

@Pete Storseth I am a bridge/hard money lender. The only reason I'd recommend against using any type of short term loan in this scenario is that it is most likely going to be cost prohibitive if you buy and rehab with cash. After you pay closing costs and points (typically at least 2% especially for no pre payment penalty) you're better off just waiting. If you're going to have to wait on 6 month seasoning, it'd most likely be better from a cash velocity perspective to use hard money for the acquisition and try and use remaining capital to do multiple deals at once. 

I think the main pillar of this question is the difference between good debt and bad debt. Which over simplified can be answered by, is this debt helping to increase your wealth?

If you're looking to build a rental portfolio, you're going to need to take on a lot of debt, unless you have an enormous nest egg to tap into. You'll need to close in LLC's as your grow so that everything does not show up as your personal debt.

Most of these types of loans never fully amortize. This means that they will be 5-10 year loans on a repayment schedule of 20-30 years. At year 5 or 10 you'll need to refinance. At this point, you can either just look to transfer the debt and continue to pay it down, or transfer the debt AND take out some equity to put cash in your hand. 

What you do here depends on your strategy and the amount of risk you want. More debt equals more risk. More debt also equals more leverage to grow your portfolio. 

Is the property currently rented? If not, I'd 100% either walk away or put the sale off until things get better. 

My city is no longer doing CO inspections. So even if this is turn key ready, you may not be able to get a renter in there if the city isn't doing CO inspections. Also, how are you going to show the property if everyone has shelter in place orders? Even if there's no shelter in place order, a lot of people will be deciding to just renew their old lease rather than go out and find a new place because of social distancing. 

It's not a great time to buy for investment purposes, unless you have a ton of cash to help carry the property while it sits vacant. But you'd need to be buying at a premium for that to make sense then. 

Personally, I think that if you're looking to build a large rental portfolio, buying in single purpose entities is really the only way to go. Basically you'd have an LLC own each property. I just use the street address to name it. Basically the owner would be 123 Main St LLC. The owner of that would be something like Kyle Real Estate Holdings LLC or something like that. That LLC would own all of the street address LLCs and then I'd own that personally. I am not a lawyer though and it may be worth something speaking to a lawyer about sooner than later if you're really looking to grow your portfolio.

As far as Corona is concerned, I think it's going to start affecting our businesses in a lot of ways we didn't expect as this becomes more serious. I just posted a topic about local governments shutting down. I own a 4 family in Asbury Park, NJ. I tried scheduling a CO inspection for a 4/1 move in but they are no longer scheduling inspections. They basically just said tough luck. The neighboring town is scheduling CO inspections for late April. I am trying to push them to come up with a solution to this. 

If you're refinancing you could run into similar issues. When you get title, the title company may be working diligently from home, but if they need certain documents from the county, or meter readings etc they may not be able to get that and thus will not be able to offer you a title commitment. Think about the closing itself. I know title companies in Philadelphia are only accepting mail in closing documents. They must be notarized though. Do you have a notary available during this? I wouldn't count on any closings in the next 30-45 days. 

I'm also a lender and am moving my files along, but I feel like we are just hurrying up to wait (which I am happy to do, it's my job). For instance, one deal I am working on is a Sheriff Sale set to close in about 2 weeks. I think by then, the entire Sheriff's office real estate division will be closed. That's ignoring the title company issues I previously mentioned.

If you have tenants in and paying then hopefully it's business as usually. You have a small sample size so things could go either way with rents at this time. You might see 100% payment through this or 0%. Larger buildings will definitely see a more even spread because of the bigger sample size. You'll get through it though.