All Forum Posts by: James Hamling

If I was buying a property for a short-term rental, regardless of what it is currently used for, I would never pay more than 8X my annual projected rents.

Yeowzers, 8X annual revenues..... I'm gonna have to start calling ya "Money-Bags Collin".

I don't care what kind of business it is, STR, Hot Dog stand, any biz I am NOT paying 8X annual gross revenues, no flippin way!

3X is a GREAT entry for most as long as it's not a sinking ship or with crushing overhead and miniscule margins.

4X-7X is a normalized range for acquiring many different business's.

0 Votes

Phoenix, Arizona

Quote from @Jay Hinrichs:

Quote from @Ken M.:

Quote from @Peter Walther:

Quote from @Ken M.:

Quote from @Don Konipol:

Quote from @Ken M.:

Quote from @Don Konipol:

Can a “subject to” transaction be done safely?

There’s been a LOT of “hostility” on BP toward subject to transactions. Some posters have gone so far as to call these transactions scams, questioning the legality, morality, and ethics of the buyer. While imo this is unfair, extreme and just plain incorrect; the detractors do rightly point out that (1) the seller remains liable for a mortgage note secured by a property they no longer own and (2) as long as the note remains outstanding the seller’s credit capacity will be impacted negatively, often resulting in the inability to obtain a mortgage for a home purchase. They further point out that many sellers are unaware of the consequences of selling subject to.

I think it’s important to note that subject to became popular in 1980 - 1982 when it was virtually impossible to transact real estate using conventional financing. Mortgage rates reached 18%, so transaction were all either owner finance, wrap, cash or subject to.

The possible negatives of subject to have been thoroughly discussed. The positives are from the buyers prospective

1- the ability to buy a property with little down payment

2- the ability to obtain financing at below market rate

3 -not needing to qualify for convention/institutional financing

4- not having another debt on your PFS

5 - not needing to pay points and other fees to obtain a new mortgage

The positives for the seller are

1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

2 -expand the pool of potential buyers

3 -possibly obtain a higher price/ quicker sale

4 - can utilize a wrap to potentially earn the “differential” on interest rate

5 -May be able to save the Realtors commission

All this being established, here’s the BIG question: Can a subject to transaction be done where both parties are reasonably protected? Let us know what you think!

.
These are very important points for each side of a creative finance transaction.

A lot of SubTo transactions don't take these considerations into account when filling out their future loan applications. Omitting this information may be mortgage fraud. When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.
***************************
I would modify #4 "4- not having another debt on your PFS" . Actually, on the loan application 1003's that I've seen,
***************************

Uniform Residential Loan Application 1003

Section 3: Financial Information — Real Estate. This section asks you to list all properties you currently own and what you owe on them.

and includes a full page of boxes to fill in such as

Property Value
Status: Sold, Pending Sale, or Retained
Intended Occupancy: Investment, Primary Residence, Second Home, Other
Monthly Insurance, Taxes,
Association Dues, etc. if not included in Monthly Mortgage Payment
For 2-4 Unit Primary or Investment Property
Monthly Rental Income

Creditor Name Account Number
Monthly Mortgage
Payment Unpaid Balance To be paid off at or before closing
Type: FHA, VA, Conventional, USDA-RD, Other
Credit Limit (if applicable)

It doesn't specifically ask who's name the loan is in. If you are taking the tax write off, you are acknowledging you are paying the debt. If you aren't making the payment, you don't get the tax write off and are subject to fraud for equity skimming.

Here’s where you make a slight error.

“Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

What YOU owe on them. Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.

“When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

No, when buying a property Subject to, the buyer is specifically NOT personally taking over responsibility for the debt. That would be ASSUMING the debt. This is merely purchasing a property that is encumbered. And, no, the courts do NOT see it that way. Case law is well established differentiation between a loan assumption, and a subject to purchase.

Fraud can be charged if the purchaser has not fully disclosed intent and circumstance to the seller, as well as the other way around. However, we need to be clear that with a subject to transaction the debt is secured by the property; most often personal liability via a guarantee rests and remains with the seller/original borrower, the property buyer has no responsibility for the debt and no personal liability UNLESS he modified this status by contract agreement with the seller; in which case he may be liable to the seller only.

No problem. It's a distinction without a difference, according to the federal court judge I litigated under.

Would you also say the seller has no right to sue the buyer if the payments aren't made? Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan? Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer?

I don't want to put words in your mouth, so I will just say those were issues as part of federal litigation. You have likely heard of Fidelity National Title Group, who sent 4 attorneys to litigate, because it was a Subject To case that would change Title liability.

As always, facts are case specific.

Do you have a cite for that case? I'd like to take a look at it.

@Peter Walther: You've handled a lot of these, Do you concur or do you have a different experience than "If the Warranty deed is not recorded then the title has not transferred and the original seller still owns it."

Seems the property Morby bought out of foreclosure is in Lake Havasu AZ & falls under

https://www.azleg.gov/ars/33/00412.htm
B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.

I get that but if you used that logic all these lenders that have their borrowers sign a quit claim at closing to be held in case they default/ or DIL and instruct title to hold it.. same thing they made a loan and now 2 minutes later they have the property back because this deed was signed.. Make for complicated transactions thats for sure.. NO equity no bueno.. long term rentals NO good either.

In MN if you try to get a rental license and your nowhere to be found on record of ownership and there is a different owner on record, there gonna catch n flag that requiring the "actual" property owner has to complete all licensing requirements.

And then there is the next level of doing a lease with a tenant. A lease is a conveyance of property use rights. Rights only an owner can convey, not your neighbor, not your Sunday bowling league buddy, only the property owner.

So then say you go doing all this work around efforts. Get a rental license, get it rented. Tenant moves out and ya hit em with say $2k assessed damages at move out.

Tenant says "F-u man, you don't even own the property, I looked it up, your renting somebody else's house". You threaten em with whatever, collections or small claims court, whatever.

So next tenant goes to a FREE tenants rights/advocacy group, who is all too happy to jump all over it. Next they report you to the Atty Gen. office claiming your doing fraud.

And it's a whole mess now. Court hearings galore, just a mess. Good luck wading through that feces storm.

See, this whole SubTo thing in residential is always just this daisy-chain of work arounds for this, work arounds for that, hide this, hide that...... Vs you could have just done a C4D and gotten the exact same deal results, had it recorded, avoided all the BS.

In residential, can anyone give me a good reason where SubTo is BETTER than a C4D? Something it does that a C4D can't? Serious question.

1 Vote

Quote from @Don Konipol:

@James Hamling

Very well stated!

I’m beginning to think that my experience differs from yours and others who have the same experience with sub to as you because almost all of my deals in the last 20 years have been COMMERCIAL properties; hence a significantly different species.

Oh-yeah, Commercial is just a totally different universe.

I'd even argue that in the commercial sphere of things, a straight-line "standard" purchase is the exception vs assorted terms constructs are more the norm.

Commercial has a very different environment of buyer/seller, it's pretty rare to find a totally ignorant party on either side. Generally people of some savvy with legal council.

SubTo in commercial realm, oh-yeah that makes perfect sense to me.

But I mean, now were talking apples to coconuts right. Commercial too residential SubTo. And every mention I ever hear or see in terms of SubTo as been toward residential.

To boot, the SubTo "guru" trainings literally speak to getting it at negative equity, using over-market price offering to hook a seller into it. That's just crazy.

Now keep in mind, my opinion is not of an outsider looking in. Yes, I AM an "insider", have been for years now. I won't get into details because I enjoy my anonymity but point is I speak from an informed position not assumption.

1 Vote

Quote from @Don Konipol:

Quote from @Jay Hinrichs:

Quote from @Don Konipol:

Quote from @Ken M.:

Quote from @Don Konipol:

Quote from @Ken M.:

Quote from @Don Konipol:

Quote from @Ken M.:

Quote from @Don Konipol:

Can a “subject to” transaction be done safely?

The possible negatives of subject to have been thoroughly discussed. The positives are from the buyers prospective

1- the ability to buy a property with little down payment

2- the ability to obtain financing at below market rate

3 -not needing to qualify for convention/institutional financing

4- not having another debt on your PFS

5 - not needing to pay points and other fees to obtain a new mortgage

The positives for the seller are

1- can possibly sell a property in which they have negative equity without bringing cash to the closing table

2 -expand the pool of potential buyers

3 -possibly obtain a higher price/ quicker sale

4 - can utilize a wrap to potentially earn the “differential” on interest rate

5 -May be able to save the Realtors commission

All this being established, here’s the BIG question: Can a subject to transaction be done where both parties are reasonably protected? Let us know what you think!

Here’s where you make a slight error.

“Section 3: Financial Information — Real Estate. This section asks you to listall properties you currently own and what you owe on them”

What YOU owe on them. Unless you’ve signed some additional liability vis a vis the seller, YOU as the buyer of a property SUBJECT TO a mortgage on the property do not personally OWE anything.

“When buying a property SubTo, one is taking over responsibility for payment, thus incurring the debt. The court sees things that way.”

“Would you also say the seller has no right to sue the buyer if the payments aren't made?”
Anybody has “the right” to sue anybody else about just about anything. Winning a judgement and having it upheld under appeal is different. A lot depends on the contract between the buyer and seller; whether full disclosure was made; and whether the seller is able to utilize consumer law or whether both parties are real estate investor/professionals.

“ Would you also say equity skimming can't occur because buyer never accepted responsibility for the loan?”

I’d say that the prosecutor would have a harder time proving his case. Equity skimming requires an INTENT to defraud. If the buyer is losing money on his investment, and walks away without gain, then by definition there is no “equity skimming”. Any transaction can be the basis for illegal or unethical behavior. Subject to transaction are neither, they neutral. It’s the participants actions or inactions that will determine how they are perceived.

“Would you also say the original contract has no enforceable power on the buyer without the signature of the buyer? ”

If by “original contract” you’re speaking of the seller’s mortgage or deed of trust with the lender, then yes, the buyer is not a party to that contract. What he is a party to is his contract with the seller, which depending on exactly what is included, can find the buyer liable to the seller for an action in relations to the existing note. And that’s why it important for both parties to be represented by legal counsel.

Look, I’ve done too many successful subject to and wrap transactions as both buyer and seller to believe that Subject to” transactions are somehow inherently bad. What is bad is having the gurus collect money from armies of inexperienced, unknowledgeable and under capitalized wanna be investors who then seduce desperate home sellers (who have no idea what they’ve agreed to) into selling their homes without understanding the consequences. And in these circumstances the chance of the buyer being sued for a default is rather high. But the lawsuit will be based on the buyer’s interaction with the seller, not on a mortgage document or any legal documents to which he is not a party.

The reason the “distinction” is important to me is that, as I’ve previously recounted in past posts, I’ve entered into many profitable subject to deals. However, I’ve developed some rules for when I utilize a subject to or wrap transactions as both. These are MY rules; I’d like to hear about others who have had successful (or not very successful) subject to /wrap transactions

1. I insist on the counter party in the transaction having legal representation. Not just stating they acknowledge their right to counsel, but actually retaining and being represented by counsel. I am represented by counsel in EVERY real property transaction I engage in, so that includes myself.

2. I will NOT deal with a homeowner or consumer; the deal must be investor to investor. Period

3. If I’m the buyer the seller must acknowledge, in writing that they understand I have no liability on the note and that they retain liability. Additionally they must acknowledge that this may affect their ability to obtain future financing.

4. Whichever party makes the note payments must provide evidence of such payment to the other party in a timely manner.

5. Insurance must be in place on the property, with the seller as additional insured.

6. The buyer must place and maintain a “reasonable” amount in an interest reserve to be used if a monetary default occurs.

These don’t GUARANTEE success, but provide a much better chance.

Ken, if the bottom line is you think subject to deals are or can be “dangerous” then I agree!

Good discussion. But, Agreeing to disagree.
Courts will surprise you on how they interpret "facts" and the implications.

Oddly, the seller committed perjury in front of a federal judge on a couple of occasions and suffered no consequences. Law is like jello, very squishy.

Always enjoy your posts, Ken. Even if we sometimes disagree LOL. More importantly, I often learn something!

So true my Dad started a company in CA in 1980 called Cal Wrap the all inclusive DT had just come out and we only wrapped PRIVATE MORTGAGES never bank mortgages. There was so much seller carry in those days.. When I was on my own and started to buy sub to in 90s and 2000 we took title sub too and it was all foreclosure rescue and all of them had significant day one equity other wise we would not fool with it. The intention and the bizz model was fix and flip and sell which we did we never held these longer than about 18 months. We did have a few called and we simply cut a check to retire the mortgage. But doing this we ran into a lot of crooks who once they realized they were not personally responsible for the debt just ripped rents and never paid on the underlying thereby totally fubaring the sellers.. And I rescued another small group that thought it was OK to buy these with NO equity or negative equity like we see people doing today they did about 35 of them .. then sold on lease options and those started defaulting left and right and you had a big mess.. they went broke and were lucky to not get criminally charged as the sellers of these got thier credit destroyed.

So in my mind this is only an advanced way of buying and not at all appropriate for the general public or starter investors who think I dont need much money..

in my mind for short term hold and control I like it but to buy with zero equity to me is not all that smart unless its areas that are historic high appreciation markets.

Jay, agree with you 100%. Amongst knowledgable, experienced investors the disagreement concerning sub to is between those who believe it’s too dangerous to be a legit strategy and those who while agreeing to the dangers think when handled by experienced, knowledgable, well capitalized investors it can be a strategy with benefits to both sides.

In previous threads I noticed that the vast majority of posters who believed subject to transactions were blankety bad identified as real estate brokers. Perhaps this view is influenced by the fact that the broker as middleman or agent is cut out from the vast majority of subject to transactions. If so, that’s a bias that should be recognized and stated; just as I state my bias of historically completed successful subject to transactions on both the buy and sell side.

Don, my general consensus of SubTo as "Bad" absolutely has everything to do with my positioning as a R.E. Broker. It's the fact that I am informed at a level far greater than the vast majority of R.E. Agent's, that I live in a world of compliance and contract law. And my vision is not of just theory but what is actually happening out in the trenches.

Just like any transaction there is ways to do them legally, correctly, and illegally and incorrectly.

It's pretty rare that I see or hear of a standard transaction being done in a an illegal or legally questionable manner. The vast majority of questionable areas are in the arena of disclosures, or lack there of.

C4D's is the next level. I have seen a much higher occurrence of issues here ranging from legally questionable to out right blatant illegal actions. Thankfully we don't usually see it at any scale, most often it seems to have been "a" person acting off assumption vs facts and get's "corrected" after not much time.

LWO is next step down the ladder into the sewers. These, Lease with purchase options, ugh.... I can't recount how often I hear buyers lament how they got burned in them. And it's because buyers operated from assumption, a lack of comprehension and education, and acted upon emotion vs knowledge. A common thread is the floating Purchase Option Price, perpetually remaining just outside of reach. Combined with rents well above market range because it's playing off emotional perception that it's "worth it" because there going to buy that home, some day..... some-day......

And we land at SubTo, the underbelly of the sewers where all the slim and sludge lies.

Now why do I say this? Can SubTo be done morally, ethically, correctly? Yeah, absolutely it can be. Unfortunately, I all but never see that. At least 98% of the marketing I see and receive for SubTo is blatantly predatory. When they hit me up, obviously doing 0 research because they threat me as Mr No-name Homeowner, I just go with it and play along to see how and where it goes.

NONE, not a single darn time has ANY of them done it legally/correctly. Every single one has, 100% of time, made out-right ILLEGAL promises and disclosures of how it all goes. Every single one of them has 100% of the time stated to conspiring to commit fraud of various types and kinds. When asked about DOS clause, 100% of them have said we will work together to keep it hush-hush and keep it "our little secret" because f-those dang evil banks and all there $-making from us average people...

THAT is my #1 issue with SubTo, the absolute avalanche of BAD actors out there pressing SubTo.

My #2 issue with SubTo is all the people there F'ing over with this horned-cow manure there pulling.

Unsuspecting wanna-b investors buying reassignments from them, having a ticking time bomb passed over. And the unsuspecting sellers who were misinformed and uninformed.

If 97% of the time people who took there care to a certain auto shop for repairs, that within months after leaving 97% of the autos repaired at that shop, the motors blew-up! Would you say "oh, well those are just the bad mechanics, there is many good ones too" or would you say this shop is BAD?

So what if I own an auto shop a few towns away, 97% is still 97%. It's NOT about trying to scalp more clients, it's about protecting my industry.

I would love nothing more than to see the metrics flip, to 97%+ of SubTo being done correctly, morally, ethically, LEGALLY.

But were not there, were not even in the parking lot of that ballpark, were miles away. And I fear it's a ticking timebomb similar to NINJa financing was. And back then just like now on SubTo any sounding the warning alarms were also called various names and ridiculed. Yeah, how'd all that work out again????

Kick in another inflation cycle like we had the past few years. Add in a recession with job layoffs. That kicks off defaults starting to rapidly rise. Kicks off rent rate compression from lack of renter affordability. Combine large inventories of MFH coming online. Which leads to various shady over-leveraged negative equity SubTo deals start imploding in mass AND the tsunami of calls to Atty G. offices from various sellers getting burned, the tsunami of court fillings of such...... It goes from 0 too "HOLLY SH!T" real fast.

THAT is the reality of it, and my issues with it all. It's loading a feces cannon.

It's one big gamble on the market trading sideways or up. Might as well be long call options in mass. Because the moment the market starts trading DOWN for any duration *BOOM* the whole damn thing explodes.

And the market trading DOWN is a VERY real potential.

Another significant inflationary cycle is not just very real but very PROBABLE.

It won't matter how much "equity" one has on paper if there isn't any dang buyers who can afford to buy at the, say 9%, 12%, 14% interest rate.

And before anyone calls me ridiculous on that inflation mention, remember I'm a Grandpa, I LIVED through 14% mortgage rates. YES it's VERY possible, it can happen and it HAS happened. I remember what all that was like and that environment come back now..... Oh-man, oh it would get so ugly so fast.......

2 Votes

Quote from @Eric James:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

The CF mistake REI make is they think you can accumulate CF properties starting from the beginning. You can't, and you shouldn't. Even if you could (and you can) find a lot of PCF deals out there, how do you buy them? It's not like you have an unlimited source of DP's available to you, and buying all cash is foolish. If you think you are accomplishing something just because an all cash deal is PCF, it's an illusion. All you are doing is playing catch up to your cost,...you cost being the cash you put into every deal. That's your cost. The more you put in, the more you have to recover before the PCF is actually a profit. That's one of the big reasons to leverage. You can spread your cash out, and each property then accumulates CF to recover the same cash you might have used on one all cash deal.

Buying for accumulating equity is also an illusion. The equity is actually what you are paying for the property. It's a form of cash that is locked up and useless to you. Those that say it has value, I'll give you all of my sports trophies I've accumulated over the years. I'll even through in my daughter's. They are both the same value.

The power of the equity is the PV it buys. When you initially buy a property, ad 20% DP, you are buying a property that's worth 5 times what you are paying for it. As the equity grows, it's diluting the power of that equity since it grows on a 1 to 1 ratio to the PV growth. Remember, that equity started out as a 5 to 1 ratio.

Here's my take on the roles of CF and equity, and why I say you must have both:

Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.

Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.

When both things occur (order doesn't matter), I sell.

Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.

Thinking you are ahead with all cash deals are an illusion. It's bad, very bad, math.
If you buy a property with all cash for $200k, and that allows you to have PCF of $1000/month, that means it will take you 200 months before you break even. That's illogical.
Thinking that you can focus on the equity as an offset is even less logical, and worse math. The DP is the initial equity you buy. Added equity comes from appreciation, which has nothing to do with how much cash you have in, or how much equity you start out with. Added equity is gained from appreciation, which is based on the property value, which starts out the same, and increases at the same rate, whether you ny all cash or no cash.

YOu have math and then you have reality and personal preference.. We all know we can run math and what the math tells us.. but tenants dont follow our math projections. And banks dont care about our math projections and how hard do you want to work to prove your math projections.. Honestly my wealthiest clients and friends with 8 figure plus net worth have little to no debt.. I get it starting out but there comes a time if you can afford it and it works free and clear is just a great place to be .. I mean right now with the price of rentals 6% or so is in reality a levered cash on cash return.. equity grows at the same rate.. now granted if you wanted to you can have more props growing equity if you leverage them but your taking on lender loan risk.. At some point free and clear is just fine for many investors. Many props that are bought for cash will return 5 to 6% COC .. So as you age out how many cats do you want to herd . :) 5 or 10 or 30 to 50 to get to the same spendable cash flow.. And is that not what 97% of BP members want spendable cash flow so they can live their life on that cash flow ? No debt makes that far more attainable than massive debt.

Yes, this is 100% true and works IF (and it's a very BIG IF) one has the spendable cash to buy 5 properties free & clear. On average were talking $2,000,000.00 spendable liquid cash.

For the vast majority starting out in REI, and on BP, that's not remotely realistic.

Most can't even conceive how they will ever have just $200,000 sitting around in liquid cash to spend.

For a great many, getting to just $50k saved up liquid cash was an achievement that takes years. So to wait another decade+ to save up enough to get 1, just 1, is not viable investing strategy.

So to use LEVERAGE, to grow a portfolio, to snowball appreciation, to Pyramid up portfolio size to get too 20, 35, 50 on leverage so they can shift strategy too Consolidation, selling down to achieve 5 Free & Clear....

That is the most realistic and viable path for the vast majority. Investing there way UP, via leverage, to a place in life where they have compiled millions in equity position so they can consolidate down to the "Dividend" phase of life.

To the "Hiltons" of life who have $250k+ a year they can throw at investing.... Well it's a totally different thing isn't it. It's not investing anymore in the earning sense, it's more so a high interest savings account. They already "made it" via what there doing for active income.

Again, a million kudo to them, double high-5.

But they are the ever so rare few. The vast majority are not there and don't have any prospects of ever having such.

And for that majority, there is hope. It will take more work, more time, more intention of actions and yes more leverage. Leverage is how they can "hack" the math into there favor. So they can achieve WEALTH.

Those who already start with wealth, it's not about creating any more it's about preservation and that is a totally different picture of things, right.

There is no 1 universal path for all. It's about path's custom tailored to the persons.

Most are in the rat-race, grinding it out in there 9-5 with no light at end of the tunnel and that is why they look to REI, for hope, for light at end of the tunnel, for there way out of the rat-race, for wealth creation not preservation.

The preservation comes after you have it to preserve. And 6% wont create wealth unless one lives a Vampires life of millennia in time scale. Most got maybe 30/40 years if not less to get from next to $0 too "retirement".

fully agree starting from scratch with limited funds debt is mandatory no question. But as Scott is pointing out for others that can buy with cash that works to.. And as know about 40% of all SFRs are free and clear and thats got to be goal number one for your retirement years in my mind.. and to be fair and balanced like Fox news.. those i know with 8 figure or more net worths generally sold business they spent decades building they did not get there buying SFR rentals.. Or as you note high wage earners. There are millions of amreicans than make well over 500k a year in salary and commishs.. And a lot of them watch Bp but dont post.

1.4 million people earn over $500k.

"1.4 million people earn over $500k."

Wow... That's only 0.4% of the population.....
Buuuut 10% of FT employed civilian workforce, that seems a lot better.....
......but why is >50% of US populace not employed FT?
US prime-age employment-too-populace ratio is 80.9%....
I should have never looked down this rabbit hole, it's depressing, lol.

0 Votes

Milwaukee, Wisconsin

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

Here's my take on the roles of CF and equity, and why I say you must have both:

Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.

Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.

When both things occur (order doesn't matter), I sell.

Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.

Yes, this is 100% true and works IF (and it's a very BIG IF) one has the spendable cash to buy 5 properties free & clear. On average were talking $2,000,000.00 spendable liquid cash.

For the vast majority starting out in REI, and on BP, that's not remotely realistic.

Most can't even conceive how they will ever have just $200,000 sitting around in liquid cash to spend.

For a great many, getting to just $50k saved up liquid cash was an achievement that takes years. So to wait another decade+ to save up enough to get 1, just 1, is not viable investing strategy.

Again, a million kudo to them, double high-5.

But they are the ever so rare few. The vast majority are not there and don't have any prospects of ever having such.

Those who already start with wealth, it's not about creating any more it's about preservation and that is a totally different picture of things, right.

There is no 1 universal path for all. It's about path's custom tailored to the persons.

Yes, a million%.

And I think far too many are stuck in some weird tunnel vision of eternal absolutes.

I am as strongly opposed to the leverage-forever notion as I am the no-leverage-ever notion, both make no sense what so ever.

The end goal should ALWAYS be a Debt-free existence.

The catch is how to get there with wealth to endure the remainder of one's days. To be empowered to truly LIVE, not just exist.

I too believe that the #1 way to get there is via business building.

And #2 is via Investing with Real Estate.

Because once made it, the #1 way to protect, defend, and secure that wealth for an enduring longevity is via Real Estate Investments.

Proof is in the pudding. Name the enduring wealth center and almost uniformly they have significant Real Estate holdings.

And as you noted, rental housing is just 1 of the many Real Estate Investment options.

Bill Gates for example, is now the #1 land/Ag owner up here in my neck of the woods. Followed closely by similar others. And they keep on buying more....

There not all of a sudden into farming, and I don't buy it for a second that they give a squat about farmers. It's about $. Wealth preservation and enduring legacy of wealth.

I personally see this segment as "The Dividend King" in Real Estate, Ag. It's a great "How-to" for preserving $ and generating a "dividend" in perpetuity.

For those with the $ to deploy and park funds, I wouldn't waste time with housing and it's myriad of headaches, I'd go for the land.

Housing is for wealth generation, land is for preservation.

That's my 2-cents.

1 Vote

Milwaukee, Wisconsin

Quote from @Jay Hinrichs:

Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

Here's my take on the roles of CF and equity, and why I say you must have both:

Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.

Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.

When both things occur (order doesn't matter), I sell.

Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.

Yes, this is 100% true and works IF (and it's a very BIG IF) one has the spendable cash to buy 5 properties free & clear. On average were talking $2,000,000.00 spendable liquid cash.

For the vast majority starting out in REI, and on BP, that's not remotely realistic.

Most can't even conceive how they will ever have just $200,000 sitting around in liquid cash to spend.

For a great many, getting to just $50k saved up liquid cash was an achievement that takes years. So to wait another decade+ to save up enough to get 1, just 1, is not viable investing strategy.

Again, a million kudo to them, double high-5.

But they are the ever so rare few. The vast majority are not there and don't have any prospects of ever having such.

Those who already start with wealth, it's not about creating any more it's about preservation and that is a totally different picture of things, right.

There is no 1 universal path for all. It's about path's custom tailored to the persons.

3 Votes

Milwaukee, Wisconsin

Quote from @Mitch Seiffert:

@James Hamling

This is super helpful, thank you! Would you have or know where I could find an example lease to use as a starting point?

Sorry, no I don't.

I started down this path years ago, taking our pre-existing lease and adding on and adapting it to this utilization. I had access to a legal and compliance team to assist in doing such, as well as my background in contract law. We literally made our own.

I'd suggest connecting with a Real Estate Attorney, and going from there.

Or maybe Larry Mountain at Land Title could be of some assistance or direction.

0 Votes

Quote from @Joe S.:

Quote from @James Hamling:

Quote from @Nicholas L.:

@Marcus Auerbach

in order to minimize my initial outlay of cash I'm trying to do a seller financed BRRRR. haven't been able to get one yet. i've purchased on seller finance, I've done a few BRRRRs, and now trying to combine them. i have made a few offers, and haven't gotten a workable deal yet. i'm willing to be patient.

it's not a cash flow strategy in that it doesn't yield any cash flow. but it doesn't require me to make giant down payments that as @Joe Villeneuve is always rightly pointing out take decades to be paid back with that $37 a month that you net.

I wonder if your maybe trying to come into them a bit too lean, or not communicating it in the right way, so seller is getting a feeling your just being a vulture vs a partner.

I do a fair # of these, seller financing.

I wouldn't say I necessarily do any as Brrrr because there isn't that flexibility to refinance at will so I'd call them more-so value add than Brrrr but end of day, yes they do work out like a Brrr just with determined date for such.

My general template is 20% down.

I view the whole thing just like purchasing any existing business, so yes there is cash-flow day 1. That's a necessary component.

If the property has value-add items, I calculate that in. Both what the resulting end product will be AND the capitol investment required.

I do a workup as-is, and I do one with the end result reducing down payment by the capitol investment to get it there.

Yes, I share my numbers with seller. If you want credibility that's how you get it, transparency. And people are accepting of the fact that your a 4-profit and not a charity, that we can't get into something at a loss or net-0.

Most I work with on this are either retiring out, and just want to be free of any/all of the operational requirements and what-if's of Landlording. Or their are a flailing/failing Landlord. Burnt out and exhausted from it all.

In both the solution is similar, we get them out of it all, and they have an as close as it can be "sure thing" monthly payment coming in rain or shine, tenancy or vacancy, they are OUT of all those headache facets.

I also lend a 3rd option, a cash-out option.

It's a simple explanation that if I have to go to the bank on it, via rates what they are etc this is what's left for them. BUT if they are ok "being the bank" I can give them more if they can lend me a rate that allows room for me to pay more.

Sharing all the #'s, it's obvious that I am being truthful, that it all comes out the same for me so what I am really doing is showing how it can be more or less to there advantage.

And here is a key thing, early into it for discovery conversation I ask "If I buy this, let's say at $____, and I pull up a brinks truck at closing handing you bags of cash for it, do you have any use or plans for where you'd put that $ now?"

When it's a "oh, I don't know" or any form to that, it's a potential seller financed deal. And you'd be amazed how many fit into that box. A LOT of people don't have that planned out. Which means a savings account of some fashion. That's an easy one, I just ask if there bank is giving them 1% or 2% for interest. Most laugh and say oh heck no not that much. SO I ask would they be open to be giving them 3X or 4X MORE on there savings, AND I wouldn't ask them to take my word for it because I am willing to securitize it 100% against an asset.

85%+ of my C4D sellers were never even considering a C4D sale before, and after this conversation and answering there questions, well obviously that's how it came together.

In a time of Real Estate where >80% are sitting on sub 4/5 rates, and such a giant % are free-n-clear this should be the strategy of popularity. It's literally the majority who fit into viability for this.

And even those who intend to do a 1031 but have no prospects for that exit buy, ok, we can do C4D and expand there window to identify by years.

The common theme here is win-win scenarios. And if that's where your head is at in it, win-win, I like to think it comes through and sellers gain confidence and trust because your not just trying to sell-em on something, your pressing for a mutual win which draws them in to do the same, come to the middle ground, working together vs adversarial.

James sounds like you’re doing good on getting sellers to carry paper for you.:)

Whereas you’re the one leading them to some degree to the end result, is there a reason there is a contract for deed instead of you going straight for a deed with mortgage / deed to trust?

If asking why I (myself and my clients) are buying on C4D vs conventional financing (yes, we are also doing that) it's because it's more profitable.

Most commonly we are getting rates in the 4-5% region. We can't achieve that anywhere else.

And this interest rate spread, say between 4.5 and 7.5, is of such impact that at 4.5 we can afford to over-pay on purchase price a bit vs market price AND we still come out ahead with significantly lower monthly servicing payments than we would have had a 7.5 and a lower price.

It's a math game.

Now keep in mind the way Joe V. and I see the math of investing.

With that lower monthly payment we have a larger "cash-flow", making our time to recoup Capitol Investment shorter.

So we can see the property shift to infinite returns in say 36mnths vs 72. That is a very big difference.

Now keep in mind, we "over-paid" by some people standard. But did we? Did we "over-pay"? when we are sooner with all our investment capitol back?

Or is it more accurate to say we bought down our interest rate at one heck of an amazing deal?

How much would your conventional lender charge you to buy-down your rate too 4.5%?

How much would it cost to even get that rate bought down to 4.5% for just first 3yrs?

So that's how we really see it, the math game. Were not "over-paying", were getting a seriously discounted rate buy-down.

And with that rate buy-down, increasing our "cash-flow" on a quality asset to cut down our time to claw-back and getting to that beautiful land called Infinite Returns.

1 Vote

Milwaukee, Wisconsin

Quote from @Joe S.:

Quote from @James Hamling:

Quote from @Nicholas L.:

@Marcus Auerbach

I wonder if your maybe trying to come into them a bit too lean, or not communicating it in the right way, so seller is getting a feeling your just being a vulture vs a partner.

I do a fair # of these, seller financing.

My general template is 20% down.

I view the whole thing just like purchasing any existing business, so yes there is cash-flow day 1. That's a necessary component.

If the property has value-add items, I calculate that in. Both what the resulting end product will be AND the capitol investment required.

I do a workup as-is, and I do one with the end result reducing down payment by the capitol investment to get it there.

I also lend a 3rd option, a cash-out option.

Sharing all the #'s, it's obvious that I am being truthful, that it all comes out the same for me so what I am really doing is showing how it can be more or less to there advantage.

85%+ of my C4D sellers were never even considering a C4D sale before, and after this conversation and answering there questions, well obviously that's how it came together.

And even those who intend to do a 1031 but have no prospects for that exit buy, ok, we can do C4D and expand there window to identify by years.

James sounds like you’re doing good on getting sellers to carry paper for you.:)

Whereas you’re the one leading them to some degree to the end result, is there a reason there is a contract for deed instead of you going straight for a deed with mortgage / deed to trust?

My origin story is from Operational side of things. My formal disciplines are Manu. Engineering, Sociology, Psychology and Business Management with emphasis in macro Economics.

Yeah, Jimmy's a "nerd", lol.

So I gravitate toward things that are well understood, proven, time tested, tie up all details in a nice neat little package, and eliminate as many variables as possible.

Contract For Deed is very time tested. In the 80's they were the go-to transactional method.

Finance institutions long well received them.

When I look at the various "jazzy" transaction methods out there I simply don't see a logical reasoning for doing, say Sub2.

In C4D we have significant volumes of case-law clarifying and substantiating things.

We have significant clarity for all sides.

I have never known or had a single one done legally where any financial institute called a DOS for such, not 1 ever.

It's just very simple, clear, long established and industry accepted, and has significant knowns for how any enforcement or default type actions are handled.

All of this lends a lot for sense of safety and security for sellers. When they call there attorney and ask on C4D because it's new info to them, I get many call backs saying "oh yeah, talked to the attorney and they said yup, this is a very normal thing and been around many years, just like you said james, were good to go".

I find most sellers want simple, simple-simple.

We use all standard Purchase Agreement paperwork and just have a seller financing addendum, which details down to the last detail every everything.

Again, simple.

I find most sellers "get-it" when we start getting into these details of things and they connect it as they are the bank, in their mind, and there relationship is understood in those terms as to what there relationship is/was with there financing.

When we start adding in the other things, it's far more foreign, because they never bought like that. C4D looks and works a whole lot like how they themselves experienced, it's just a shift of chairs in it all.

I have simply never found a reasoning for doing a different transactional method. Simply put, just never had to, these 2 transactional tools have well covered 100% of situations.

Ok I take that back, I did once do "a" deal via purchase option but that was on raw land for development so that was very much a different thing. Purchased from 1 developer and sold to another.

In C4D the mortgage remains untouched. The deed does not convey BUT buyer is fully secured in there position with the recorded closing of the C4D. I've had nothing but a-ok happy finance institutes on these.

The other methods, I've always seen blind-spots, points of friction, grey areas, conflict potentials. I don't like that, I don't like problems, real or potential ones.

2 Votes

Milwaukee, Wisconsin

All Forum Posts by: James Hamling

James Hamling has started 14 posts and replied 4193 times.

Post: Selling Home for STR - Is There a Ratio of Projected Income to Sales Price?

Post: Can a “Subject to” Transaction be done SAFELY?

Post: Can a “Subject to” Transaction be done SAFELY?

Post: Can a “Subject to” Transaction be done SAFELY?

Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Post: Group home rental in Minnesota

Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

James Hamling has started 14 posts and replied 4193 times.

Rounded Star Post: Selling Home for STR - Is There a Ratio of Projected Income to Sales Price?

Rounded Star Post: Can a “Subject to” Transaction be done SAFELY?

Rounded Star Post: Can a “Subject to” Transaction be done SAFELY?

Rounded Star Post: Can a “Subject to” Transaction be done SAFELY?

Rounded Star Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Rounded Star Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Rounded Star Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Rounded Star Post: Group home rental in Minnesota

Rounded Star Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Rounded Star Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Post: Selling Home for STR - Is There a Ratio of Projected Income to Sales Price?

Post: Can a “Subject to” Transaction be done SAFELY?

Post: Can a “Subject to” Transaction be done SAFELY?

Post: Can a “Subject to” Transaction be done SAFELY?

Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Post: Group home rental in Minnesota

Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous

Post: Why getting into real estate primarily for cash flow is wrong - and even dangerous