All Forum Posts by: Michael Evans

You first need to know what is motivating the seller to sell. Is it that they need a lump sum of cash? Are they tired of being a landlord, but the need the monthly cash flow. Once you understand what motivates the seller, then you know how to negotiate. If they need cash flow, ask them to carry as much of the note as possible (up to 100%) for as long as possible. You can make it interest-only with a balloon payment due in 40 years, as long as the monthly interest payment works for them and it works for you. If you can get a property with no money down, no out of pocket cash, and you only net $50 per month, I would take those all day. Give me as many as you have, because the ROI on my invest in infinite. It's like walking down the street and finding $50 on the ground each month.

Now if they need a lump sum of cash, then let the down payment equal the cash they need and do a joint venture with someone with cash to either loan you the money (remember that 40-year interest-only loan) so you can give it to the seller and the JV partner gets a 2nd lien position, or they can take an equity position and get a portion of the monthly profits. Since you're giving the seller a lump sum of cash, you need the loan they're carrying back to be as long as possible and the interest rate to be as low as possible. You will then maximize your monthly cash flow with little (if any) out of pocket cash.

You should always be able to negotiate a great seller finance deal once you know what is motivating the seller.

Run the numbers. If the numbers make sense, then use the HELOC. If they don't make sense, then don't use it. You need an evaluation system. We have a deal management system where we run every single property through it and it allows us to adjust using a 1st and a 2nd, different down payment amounts, different interest rates and terms (interest only versus amortized) and different costs and points.

I can tell you this: Using leverage, even for buy and hold properties, when done correctly will supercharge your returns.  If you are able to do 100% financing of all costs and generate just $50 net income per month, that is an infinite return on your investment.  Give me as many of those deals as possible please.  The risk with leverage s being overly levered when the market turns an your vacancies increase, your rental income decreases and you don't have enough income to cover your expenses (negative cash flow).  But there are ways to manage and shift that risk.  PM me if you have further questions.

The pros to paying cash and then refinancing is speed.  You can close faster when you come in with cash.  The cons is that you have to wait to get your cash out.  Most commercial lenders require your loan to "season" before you can refinance it (6-12 months).  Wells Fargo has a commercial loan program specifically for investors where you can immediately do a cash out refinance the day after you close.  You can get 70%-80% of the "appraised" value of the property and they fund within 45 days.

So it's all about how quickly you can close with cash versus financing, and your ability to refinance to get your cash back. There are other sources of refinancing other than commercial banks. Private money loves a low LTV and can fund quicker than banks. Commercial banks will also limit the total number of loans a single person can have (10), so are you get larger you then have to use other tools anyways.

I don't recommend this specific deal because the numbers don't make sense.  But the way you can make this work without invoking the due upon sale clause is to put the property into a land trust for "estate planning" purposes.  Have the seller give you limited Power of Attorney specifically for this property so that you can "manage the estate planning".  You send the limited power of attorney paperwork to the loan servicing company, the insurance company and the County informing them that all communication for this property will go through you as the attorney in fact for the land trust (you need to be name the trustee of the land trust).  After you establish the original land trust, you have the owners (beneficiaries) assign the beneficial interests to you (the buyer who also happens to be the trustee).  The land trust doesn't get filed with anyone (not even the government) and you can always show the original if someone contests the validity of the trust to show the owners as the beneficiaries, but no one needs to know they have assigned the beneficial interests.

So legally, the lender will never know that ownership of the property (which lies now with the land trust) has changed hands.  Only a court ruling can compel the trustee to divulge the identities of the beneficiaries.  Hope this helps.

We have a system where we use a 1st and 2nd positon loan to cover 90% of the total costs (purchase, rehab and closing costs).  The equity investor brings about 10% to cover out of pocket costs and holding costs for the flip.  We then have 3 exit strategies:

1. Flip to a retail buyer at ARV.
2. Flip to a buy and hold buyer at a discount.
3. Flip to a sister company that turns it into a buy and hold.

The financing we put in place assumes we will hold it and is assumable for the buy and hold investor, while still providing a 10% cash on cash annual return after taxes.

Wells Fargo has an investment loan program where you can do a cash out refinance the next day after you close. 70%-80% LTV of the "appraised" value. Closes in 45 days.

You have a couple of choices:

1. Close with your money as the down payment, and upon closing get a loan against your equity in the property.  The loan would be in 2nd position, high interest rate and would probably require a "rental income" rider where they have the ability to receive rents directly from your tenants if you default (that's what we require).
2. Ask the seller to carry a 2nd for the down payment.  You will normally get a lower interest rate and better terms than a hard money loan.
3. Do a JV with a private "silent" investor who loans you the money in exchange for interest or an equity position.

I did this with a home I owned back in 2003, and it paid off. i did it with another house I owned in 2005 while I was going through a divorce and it was horrible, and I lost the house (actually ex-wife lost the house). I would pull out 100% of the equity in a house because I don't believe in leaving equity in a illiquid asset, but I wouldn't put all of the equity/HELOC into real estate. Real estate isn't liquid enough for you to sell your position if the market turns against you. Proper Money Management states that you shouldn't have more than 5% of your "bankroll" in any single investment. So I would spread it around.

We have a strategy where use a 1st and 2nd position loan to fund about 90% of the total costs.  The flipper (equity investor) covers out of pocket costs and holding costs. PM if you're interested.

Medium term hard money loan. You should be able to get 70%-75% LTV against the property, interest only payments, you want it though for 2-3 years, so that you can have to get your properties lined up to refinance. Sounds like it's time for a portfolio loan and to partner with Private Money for a portfolio or blanket loan.