All Forum Posts by: Robert Tryon

Jared - often we find investors are using different bridge lenders to acquire, rehab and secure a renter, then they refinance to permanent loan/lender after renter is in.  Both lender types are portfolio lenders. Some lenders are better at the front end short-term loans while others, like the one you referenced, are more interested in the perm (cash flowing) loan. 

The bridge lenders are typically a bit more expensive, but move quickly and have more flexibility in working with you. Permanent lenders are looking for the stable, cash flowing property with good credit tenants. It's hard to find one lender that will give you the flexibility to acquire, rehab, fill and then cash out. Suggest you look at splitting the process into two phases and seek different lender for each.

Feel free to PM me if you want to discuss particulars of your capital strategy.

I guess you could, but it all comes down to the economics for the buyer. Can they purchase the property, pay off the liens and make repairs for a price that is equal to or less than market? Selling a property subject to foreclosure requires a sophisticated buyer and lots of disclosure on your part. You better know what you're doing before you attempt it!

Chris,

A notice of default does NOT change the owner on title of the asset, it only gives notice of lien holder's intent to collect on their debt. Sometimes an asset owner in default will voluntarily give a deed in lieu to a banker in return for agreement/consideration not to pursue owner for shortfall (personal guaranty) on the debt after the asset is sold. A house going to auction or Sheriff Sale may or may not be owned by the lender/lien holder. 

Usually the owner of the house doesn't change in a foreclosure until the redemption period  is complete after the sheriff's sale. In MN owners are typically granted under law a redemption period of 6 months to pay off the debt/lien - there are exceptions to this. If the redemption period runs out after the auction/Sheriff Sale without payment, then the process of clearing title to the property begins. Under that process junior lien holders have a very short window (something like 7 days or less) to pay off all creditors ahead of them (e.g. 2nd mortgage pays off the 1st). The last lien holder standing in the process becomes the owner of the house and all other liens get cleared away thereby giving them clean title to the property. 

I am not an attorney, but I have served many years as the treasurer of a homeowners association and have had to go through the process a number of times. Hope this helps.

One additional comment. If you intend to sell, don't refinance, just gut it out until it's sold. If you plan on holding for long-term, my comment above applies.

Using credit cards at 8,10 or even 15% rate to carry the cash flow burden doesn't make sense!! You have a long-term negative cash flow problem that you are trying to resolve using short-term resources (credit cards). Most investors want to use cash from others (rent) to pay costs and build reserves or equity (prepay mortgages). You are doing just the opposite. I would refinance now and lock in the low rate for 30 yrs. and turn that negative cash flow around. You can use excess cash flow from rent to pay down mortgage after you pay off credit cards. Fix the financial structure first, it is key to long-term success.

Matt,

The 10% return you reference is a reasonable return to use in your proforma and in your negotiations as a first time investor. I have been financing investment properties for over 15 years and most private money lenders are looking for a return on their money in the 10-15% range over the course of a year. Hard money lenders typically have a higher IRR (internal rate of return) target of 15-20% annually. IRRs typically include any origination fees, interest and exit fees on a loan. Private lenders can be more flexible to work with and close quicker than conventional lenders. If you can find a conventional lender for your deal, their rates will be much lower than a private lender. Currently conventional rates are in the 4.0% to 6.0% range with 1-2 pts origination fee.

I see more loans to LLCs than individuals on investment property primarily as a way to limit personal liability exposure. This also helps separate problems on other properties or personally from operations of the LLC.

Would suggest you find an attorney and CPA to bring on as part of your team. Good advisors are worth their cost on the front end. Remember, your first deal is your most important deal, so make it a successful one!

Daniel - I have been financing senior housing operators for over 15 years and it is really an operating healthcare business more than rental property. Your best place to start would be to hire a reputable management company in your market who runs other similar size and type of facilities. Market demographics and competition are very important to positioning your facility for success. If greater than 50% of your ALF residents are on Medicaid, you will struggle with profit margin, ideally you would have 65%+ private pay.

Keep in mind senior housing is considered 'special use' in the eye of lenders so there are fewer loan options in comparison to apartments (no CMBS, few life companies, fewer bridge lenders). I agree with @DanBrewer, it doesn't make sense to own one or two facilities because it is a significant undertaking. The successful operators I know are typically all in on senior housing with very little else in their portfolio.