All Forum Posts by: Mark Elkins

The subdivide you are requesting is easy by comparison to what you may think.  Get a current survey to your lawyer and have him get the new zoning and tax parcel ID.  As long as you are permitted to divide the land into the parcels sized as you imagine you won't have any problems.

As a clever strategy if you are permitted by your local government to divide the land, locate a builder and ask him to partner in new construction.  Your contribution is the land and he pays for all the improvement.  In the end you get paid retail price for the land plus 20% of the profit on the building(s).  If there is room for more than one structure on the subdivision, allow the builder to sell them off in pieces and pay you in increments.  This will be a good deal for the builder because he won't have to come up with the cash to buy the land.

I hope this helps!

Holler if you need me.

Best regards,

Mark

Easy one! Sell the house for $200,000 on contract for deed 30/yr fixed 6% $10,000 down to somebody with a good job who won't qualify for a bank loan. Mortgage P/I will be $1,140. The buyer will be responsible for his own HOA, taxes, and utilities. Put the down payment money in some secure short-term investment like a cd or money market account in case of emergencies.

Since the buyer will be responsible for his own repairs and interior maintenance, the only emergency you should face would be hiring a lawyer to take back the condo and/or paying the existing mortgage current if the buyer is late.

Have the buyer make the full payment to you and you pay the HOA and the taxes, insurance on his behalf. The bank on your new buy will consider 75-80% of your revenue from the sale as income in calculating your ability to buy a new home and the $10,000 will be an asset to list on your application.

Give the buyer a 2-year balloon payoff with a $5,000 fee for another 2-year balloon after that.  Thus by 4 years from now, the buyer will have paid off the house and you will enjoy the profit from the improved sale amount without a realty commission.  If the buyer is unable to buy after 4 years, buy back his "equity" if there is any for a discount or let him sell the house, then collect the profit or resell the condo on the same plan at the newly inflated price.

I hope this helps!

Holler if you need me.

Best regards,

Mark

Banks, in general, are stupid and fix and flips are risky for the uninitiated. To use both personal and Sidra funds you need to set up an LLC and partner. Check with a specialized lawyer like Mark Kohler out of Salt Lake City. (say I recommended him). He can give you the ins and outs of that type of strategy.

How well prepared are you for fix and flips, how well do you understand the markets and values? These are the important questions. A better way than a consumer bank is to get a commercial banker. Buy the house you want to F&F for cash keeping the money aside for repair. Put the house into a trust and ask a commercial banker to give you a line of credit on the free and clear house. You can now use the loan to fix it and sell, or you can repair it with your cash to improve your equity and ask the banker to extend your credit line. Now you have a "credit card" like loan based on your property equity. You may write a check for your next house and put it in the trust, each time asking your banker to extend your credit line to cover your improved equity. Rent each house for a year and take advantage of the lower rate for capital gains tax when you sell. Sell each house, in turn, paying back your loan and keeping the profit for yourself. Build your line of non-recourse funding to the point where you can use it to buy something substantial like an apartment complex or strip center without the need to get an approval from the bank. You essentially become a cash buyer based on your line of credit and may shift things in and out alternately buying and paying.

I hope this helps!

Holler if you need me.

Mark

I wish I could attend! I'll be at the high school water polo game.

If somebody is going to rent a cheap place in a midgrade neighborhood, their credit sucks anyway.  Look into the court records of counties they can verify they lived to find any history of eviction for all the adults who will stay in the apartment.  You can do this for free online.

Insist on personal references from applicants and talk to them to be certain they are who they say they are.  These are the people who will know how to contact the tenant in the event of a problem.  Call their job references and see if they are good employees.  Their current boss can tell you if they are likely to have an ongoing job.

Charge the neighborhood standard amount of security deposit.  Some places can only get one month and not two.  Make allowances for the condition of the house.  There may be something that is repellant that a tenant will accept if there is some concession on your part.

If you use this you can avoid some of the background check fees.  If you are going to rent in these areas you have some additional risk that you are going to have to face in exchange for the high rent to low-cost ratio.

Definitely, follow some of the advice above regarding showings.  If you schedule everyone at one time, you will get several applications just because of the competition.  All those people will make your place seem like everybody wants it and tenant prospects will act out of urgency and fear of loss.

@Jay Hinrichs your point is well taken!  That's one of the largest considerations here.  The OP says the structure was demolished leaving an open field! LoL.

With HML financing typically being 65% of as-is value, with only a building lot to sell if he takes it back, I see an opportunity to negotiate with the HML. Given your estimate of $600,000 needed to build a home which seems very accurate given the proposed ARV and typical lot values as a percentage of purchase price, there will be a shortfall. Besides which, the HML probably does not want to be a home builder.

If our OP brings a proposal that makes the HML whole but takes a little time, I'd bet a dollar that a deal can be struck.

BTW- my point on the litigation is not specific to mortgage discrepancies. I'm commenting in general on Civil Procedure, which can choke any dispute, including small claims out to a year or longer. Nobody, particularly the active HML wants to wait that long when he can easily recover his money sooner by taking a deal.

I hope this helps!  Holler if you need me.

Best regards,

Mark

What Ola says is spot on! The new term for this type of multifamily purchase is "house hacking". That's because any dwelling of 4 or fewer units is considered residential so when you apply for the mortgage you can take advantage of the FHA and other favorable programs along with owner-occupied interest, property tax savings and reduced insurance costs to "hack" (beat the system in some creative way) the rental ownership starter problem.

Either way, if you decide to use payments from renters in other units of your own dwelling, get a family member to spilt costs with you or just buy it outright, personal home ownership is the single most important investment you will ever make.  This is even more important if your home is in the San Francisco Bay area where personal home prices continue to spiral out of sanity away from the rest of the nation.  If you live and work there and you have the advantage of being able to afford a home there, someday you will find this advice to be quite sage indeed.  The price of an ordinary home in that area can easily buy two or more, ordinary homes in a less expensive market.  There are only 8 markets in the world more expensive than San Francisco (only 3 in the USA) so your viewpoint may be a little bit askew if you have never lived anywhere else.

The value and the basis of your first home is the thing that will carry you into your retirement years safely.  It's available for equity dollars for other investments or simply to raise the money to buy your next home so that your retirement dwelling has no mortgage and provides you the safety that your home is supposed to do. DON'T SKIP IT!  Mom and Dad won't be here forever and someday may want you and your new bride out of their home.  

Another thing to consider is that rental income is never a guarantee.  Real Estate is a risky investment!  That's why we make the big dollars.  We are willing to take the risks that others won't.  While they rent, we own and count on them to pay.  If you own your own home, you reduce your risk by having a stable cost of living while you build your fortune.

If you start with a 1-4 unit you will get all the advantages of personal home ownership along with the bonus opportunity to have others pay your costs.  In any given month that they don't, all you have to pay are your own expenses which you would have had to pay anyway (the bank will see to it you can afford the mortgage with your own resources).  You will also get the opportunity to learn property management close to home without additional expense and keep an eye on your investment.  

One other advantage that is rarely mentioned is that when you rent space in the residential dwelling you also occupy as a primary residence, Equal Housing Opportunity restrictions do not apply.  This will allow you to rent only to those people you feel comfortable with rather than just any qualified applicant.  So if you are uncomfortable with confrontation or, ethnic customs or you just prefer to rent to people your own age, you may choose your tenant on any criteria you like.  The example they talk about in real estate license classes to explain this is, suppose an elderly woman wanted to rent her own place but was afraid of potential confrontation with young men, she could choose to rent only to young women to satisfy her safety concerns.

I hope this helps!  Holler if you need me.

Best regards,

Mark 

 Thanks for clearing that up for the lending in CA!  Your license law must include mortgage education.  

The various states all have some variations in mortgage foreclosure. My experience in CA goes back 10+ years in San Diego and in Garden Grove and I was able to work out some amazing deals, including the one I mention where I bought the property from the failed owner subject to the existing financing and then negotiated a discount purchase of the underlying mortgage from the HLM.  I then foreclosed on the property earning the difference between the purchase price and the mortgage before selling the property for a tidy profit.  

The biggest difference between foreclosure and trust states is that the homeowner must initiate the litigation in trust states.  After that, the laws are mostly the same and the standards of proof and civil procedure are the same.  A friend of mine in Sacremento kept a foreclosure open for 8 years until the successor in interest to Bank of America finally gave up.  So this is a large part of my strategy on these types of buys when I don't get cooperation from the lender.  I will sue on the mortgage before the process is final and that will tie it up long enough to encourage negotiation.  I have not had to do this with any HLM.  They seem to come to their senses pretty quickly.  They won't recover all their money on the courthouse steps so if there is a good deal on the table and the deal can actually work, makes sense and pays them all or most of their money, a deal can be had.  It's mostly banks that won't listen to reason.

Thanks again! You've got great experience and I've been reading many of your posts.

I hope this helps!  Holler if you need me.

Best regards,

Mark

@Sean Yang

Gentlemen, please allow me to tie up some loose ends from the discussion above. First, Sean, no, the real estate agent license and mortgage brokers license are different things. The Mortgage Broker is subject to Dodd-Frank regulations. The real problem is that he didn't broker a mortgage to you it was to the investor. To you, he might have been an investment counselor asking you to get into an unregulated investment without proper disclosures. If you are not an accredited investor, this is particularly troublesome. You might have some recourse against him via SEC violations. That would be the long way around and may never come to any result for you.

Foreclosing or threatening to foreclose is not your best option, depending on the state regulations and the determination of the buyer you could get tied up for years in an hourly attorney fee. BTW- your first check should be with the recorder of deeds. It is possible and, it actually happens with unbelievable frequency, your "2nd" mortgage lien might actually have been recorded in 1st position! If that happened, you can sit back and wait for somebody to pay you (provided the taxes stay current). If it didn't you need to get busy protecting your position and negotiating a solution.A collection agency is not the way to go. All they do is hound the debtor for a commission and if they can’t collect they either give up or recommend a lower level agency that wants more commission. Eventually, somebody will sue the buyer for you but you won’t get more than a dime on the dollar if they are able to collect at all. If you want to do this you are better off to sell the note to somebody who buys non-performing mortgages for a fee (typically 40-60 cents on the dollar) and then the problem is his.

The rest of this is right in my wheelhouse so feel free to contact me about this. Let me splain. . . .No, there is too much, let me sum up. . . .

The HML is not really out that much money because $300,000 is in escrow! The HML and claim his escrow and walk away with the property by foreclosing and be pretty much whole even by selling the property at a deep discount at foreclosure. Your concern is getting your value back anyway you can, not in having the borrower pay. There are so many options my head is spinning at the sheer number of ways for you to come out ahead on this deal. @Bruce May is right the HML doesn’t want to foreclose. You could buy the mortgage from the HML at a discount if you have the cash and there are ways for you to get the cash. You could take a deed in lieu of foreclosure from the buyer and guarantee the HML yourself on negotiated terms. If your credit position is good you could then refinance the whole deal and handle it yourself or sell it by simply giving the HML his $300,000 back with terms on the $200,000.

You could still have a claim against the buyer the whole time and if he is really reputable he might make arrangements to pay you. More likely, he is in a bad position all around. You said that his business is belly up. Perhaps he has equity in another project that you could take over and finish for a profit beyond your investment? That could be a great solution for you! You get a workable project and he gets out of your debt only to deal with the HML.

You must start to get creative or somebody smarter is going to take advantage of what I personally think is an ideal situation as a buyer and they will come offer you a short sale. Given the costs you are likely to incur if you go to court, that short sale will be your lifeline.

I can think of about a hundred ways to make this deal work to your advantage or at least get you mostly whole. You just have to find the one that works best for you!

I hope this helps! Holler if you need me.

Best regards,

Mark

P.S. The rest of the comments here are also correct.  EVERYTHING IS NEGOTIABLE. Don't forget that!  It's not uncommon to offer only $100 earnest money or even $10.  The real consideration is a promise for a promise.  That's basic contract law.  Pay only what you are comfortable with and put as many conditions as you like.  Good luck!