All Forum Posts by: Louis Bergman

I say it's actually easier to get good financing when you're buying a large 100 unit plus Multifamuly complex, but that's another story.

But as to the specific remark on more work, the following.
I strongly suggest you carefully select a Professional Management Company to help you with a lot of the due diligence. They have systems in place to do such a review, and as they will be responsible to run your property at the lowest cost possible, they will be very detailed in their evaluation.

Yes, it may cost you a couple of thousand dollars, but in this playing field beware for penny wise pound foolish. The Lender who is evaluating your financing request will recognize you as a Pro and that will have a very positive influence on their willingness to do business with you.

Hope that helps a bit.

Some Brokers will tell you 4 months, but I personally have never seen that happen in practice.
If everything flows smoothly count on 6 months.
But a lot depends how complete your paperwork is and how quickly you respond to the questions that will come.

You have a big team to work with; a lot of moving parts there.
A delay by one of the players causes delays elsewhere, and 2 weeks lost is hard to catch up.
I suggest you use an architect and a contractor who have worked with a 223(f) before, as there's quite a bit of specific paperwork involved, and having them learn "on the job" can create some serious delays.

Some developers will walk away from such a long wait; once they got the permits they want to "start moving dirt" asap. That is not allowed however while the Loan is being processed.
But in the end when you do your research you'll quickly find out that these Loans DO close, and that's a whole lot better perspective than a lot of other products out there.

And you just can't beat the terms...

So hang tough; it's worth the wait. :cool:

Best advice I can give you is to close with an Attorney or Title Company with experience. Most commercial lenders don't really care, as long as the numbers make sense and the Appraisal supports the contract price.

You should be fine. :D

I found RealQuest to be the best available tool to quickly have a good feel for the value range of a property.
We were able to come up with a lot of useful info while on the phone with the sellers. That allowed us to ask some pretty pertinent questions, like "How does your house differ from the in located on number 57 down the street from you?".

As with every tool you have to learn how to get the best mileage out of it. But if you combine it with what is available on Zillow and if you're lucky some pictures on windows live, you have a pretty good idea of values.

Temi is right of course, but it won't be easy to find a competent realtor every time who is willing to perform the services for free.

So I think you'll be just fine. :cool:

If you're buying commercial properties the LLC is the venue of choice, even though you're still on the note in most cases.

But for the residential stuff you're going to be jumping through a lot of hoops to get financing through an LLC. And the outcome in the present market is very uncertain. The time you lose with that might be better spend looking for your next property.

Please note that I am not giving any form of legal advice here as I am not qualified to do so. You should always run this by your Attorney, and follow HIS advice to the letter.
I want to be very clear about that, and start out by saying that this is what a seasoned Investor suggested to me at the time as a workable solution.

You have to realize upfront that this course of action requires quite a bit of work and you may still end up without a viable solution.
But here it goes.

Go to the IRS website and download all information on Form 1041. Sit down with your CPA and evaluate each property in your portfolio to see if you can restructure the ownership into a "Inter Vivos" (Living) Trust in compliance with these regulations.
Please note that I will not go into a discussion on whether Garn-StGermain's intended protection should ethically and rightfully apply.

But if you determine that on some of your holdings the restructuring makes sense, make the change on the Title. Inform the Lender that you transferred ownership to a Living Trust for estate planning purposes.
Next step is to have your CPA request a separate Tax ID number for each Trust.

After a month or two send in a letter to the Lender along with your monthly payment requesting that the interest should no longer be reported under your SSN, but to the Tax ID number of the Trust.

Keep checking your credit regularly to verify whether the Bank has complied with your request, as the Loan should no longer appear on your credit. Keep in mind that the Lender may elect not to do so, but you have a good chance they will.
If you can do this with several of your holdings, you will have a greater chance that a new Lender will once again be willing to finance an additional purchase.

Having said all that, it might be easier to just sell something so you end up with less then 10 properties again. Or just switch to commercial where these rules do not apply.

Good luck. :cool:

I very much agree with David's conclusion.
Here’s how it looks from here.
Are there better deals out there? Possibly.
Is this a deal you should walk away from? Not necessarily.

Going HUD, I would have no problem to fund this deal any day of the week. Bear with me, as my numbers are rough and dirty at this point but they will get the job done.
This deal is pretty straightforward and middle of the road in my book.

This would be a 35 years non-recourse fixed rate Loan and I will use a very conservative 7% interest rate (less then 6% today) for my calculations.
Let’s say a Purchase Price $4,190,000 and an Appraised Value of $4,471,000 (my guess is as good as yours?).
Let’s also assume a low NOI of $421,200.

These numbers would allow me to underwrite your deal to bring a mortgage to the table of $3,800,000 and if the seller agrees to hold a 7.5% note the buyer would have to bring a check to the closing table of just under $260,000.
I estimate debt service at just under $300,000 fixed for 30 years.
With a DSCR of about 1.4 this would be a very bankable and doable deal.
I hope I'm not missing something?

I just love these HUD loans... :mrgreen:

Emilio,

This is truly a great HUD loan in the making.
A lot of your questions will be answered once you have your "team" in place.

Here are the members I would be looking for:
--- Experienced Architect who has designed similar facilities
--- Experienced Contractor who is licensed and bondable
--- Professional Management Company with a successful record in this field
--- CPA experienced in Assisted Living and Senior Living
--- Sharp Real Estate Attorney familiar with licensing and other
requirements of City, County and State.

Your meetings with them will guide you on what is required and how costs are categorized.
Do involve your Loan Broker from Day 1, as his experience will be essential in helping you structure a financially feasible deal in line with the market. Remember that even though your particular State does not require the facility to be licensed, your Lender may require you to get all licenses in place anyway.

My preference is to select the Management Company first, and pick their brains in the design phase as to what it takes to have an efficient and profitable facility.
They've been there, done that, and will end up saving you substantial money in operational aspects and technical requirements.
They have a "system" that works well including technical requirements, logistics, maintenance, procedures etc.
So no need to invent the wheel there.

That's where I would start in order to be sure that I covered all the bases. Keep in mind that you would have to place a standby LC to cover shortcomings in cash for the first few years.
Do come back if you have any questions.
Hope this helps a bit.

Louis :D

I hate having to answer the question in a positive manner, as it creates a wrong mindset with many wannabees and tire kickers.
But here is the quick and dirty for those who will know how to benefit from this.

In some cases with New Construction and situations where a distressed property is purchased below FMV while needing substantial rehab, you will find that you can have a Loan scenario that reaches 100% or even more. As a specialist in the field and in the normal course of business I regularly place these Loans with my special Lenders.
Having said that, this is not a right for everyone to claim.

These so-called HUD loans are NON-recourse, but the Lender (the Bank) will most certainly look at the investor to gauge his experience and financial standing. Your strength, experience as well as the recommendation of your experienced Broker in good standing will determine whether the Bank is willing to grant such an exceptionally high leverage Loan.

In first instance the Bank will judge the Broker's underwriting on its own criteria, as in the end this loan will stay on the books of the Bank (not HUD).
If their due diligence confirms the positive information as presented, they will submit the package to HUD who will then on their own start the process from scratch to verify what the Bank presents.
If in the end HUD agrees with the Bank (and indirectly with your Broker who stuck his neck out), a closing date is determined, and FHA will proceed to guarantee the Loan to the Bank.

So yes, these are truly the Rolls Royces among Loans, but they take several months to close.
You have to know your stuff to be able to negotiate such a long closing with the Seller.
Experienced investors have no problem with all the LOIs, contracts, bureaucratic procedures and forms, because it just does not get any better for the Pros. But if you're relatively new to the field, and have no financial strength whatsoever or experience in multifamily, you will not get access to these high leverages.

So Lee is correct in saying it is indeed possible. But this playing field is for the Pros.
Hope this cleared up some of the misunderstandings on the subject.

Louis :cool:

Unless a project is large enough to support professional management, I suggest you stick to an area of up to 50 miles from your base.
If it cannot support professional management, buying out of your area all too often is a (financial) accident waiting to happen.

As your experience grows and you refine your investment goals, let the demographics and economic numbers of the day guide you on markets. What is "bad" today, may be the "hot" market of tomorrow.

Hope that helps a bit.

Louis :D