All Forum Posts by: Patrick Roberts

REI Central is an excellent in-person meetup to meet other RE investors. It's this Thursday (3/6/25) at Palmetto Brewing on Huger St at 6p. Turnout is usually pretty solid.

MTP in on the last Thursday of the month might be another good meetup for you. Usually a few RE people there, as well as some other B2B businesses. 

Quote from @Doug Pham:

Quote from @Jeff S.:

If they want your money, @Pavan K., why aren’t they offering you a stake in the partnership? This sounds like it could be a good deal for the partners, and perhaps the bank, but a terribly risky deal for you, with little upside.

What exactly do you mean by, “There will be a promissory note drafted for the amount and the duration and interest rates”? This is not even close to the documents required for a properly drafted loan. Do you think the bank’s loan will consist of one document, drafted by your borrower? Did your borrowers mention securing your investment with a recorded mortgage or deed of trust, personal guarantees, lender’s title insurance, or anything else? Of course not. Even this is an incomplete list.

Worst of all, the main reason not to make this loan is that you will not hold a first position-lien against the property. This means that if the bank forecloses, and you can’t pay it off, you will lose all of your money with no recourse to anyone.

One option to secure your loan is if one of the partners has a free and clear property worth significantly more than your loan. In this case, you could use it to cross-collateralize your loan with a first-position lien. If their deal goes bad, you could foreclose on that property and hopefully recover your funds. If not, don’t even think of this.

No matter what, consult a qualified lending attorney to understand your legal options and ensure you have proper loan documents in place to protect your investment.

 Hello i am in the same process as a borrower . At a minimum what are some documents needed to be in place for a lender ? Promissory note , lien / deed ? 

 Promissory note, recorded mortgage or deed of trust (depending on the state), personal guarantee from the sponsor if the borrower is an entity, a review and copies of articles of organization/incorporation and operating agreement if the borrower is an entity, lenders title policy and title search with chain of title, proof of identity for the borrower(s), proof of the correct insurance coverage and mortgagee clause, the list goes on. 

If youre not in a position to underwrite this deal properly, use a service like Call the Underwriter or an attorney/consultant. The lender's attorney should be who drafts any documents for the loan, not the borrower's attorney and not the Title company. You want to make sure the attorney is representing your interests - lawyers at Title companies that are a party to the transaction typically wont do this.

Have you had any issues with evictions on these? A few of the investors I network with use similar strategies and have said that some courts are loathe to evict people in some scenarios because they treat them as having some kind of equitable interest in the property. One reported that he had to go through a foreclosure process rather than an eviction when the tenant defaulted. 

Ive been actively working to learn more about the nitty gritty legal details on lease options, rent to own, etc., for the past few months. Overall, the math seems to be decent and it seems like a plausible strategy. 

Closed-end second mortgages (sometimes called equity loans) are becoming popular because so many people are in the situation youre in. The NonQM market is starting to offer these products. They will allow you to tap into the equity without having to refinance the existing low-rate first lien. The downside is that these loans are expensive. In my opinion, these tend to be better options than refinancing in short term and mid-term scenarios. Long term is more variable. 

If youre considering a 2nd lien, you'll want to analyze A) the blended rate between the two loans (this will be weighted, not an arithmetic average), B) the amount of time the 2nd lien will be outstanding, and C) the amortization on both loans. Compare the 1st/2nd scenario against a cashout refi on the basis of the effective rate at the end of each year until maturity/expected payoff and the global cashflow. 

The reason is this - if you have a 1st lien, 30yr fixed that is five years in, and you stack a 10yr or 15yr fixed 2nd lien behind it, then the blended rate is going to change every time you make a payment. This is because they are paying down at different rates, and so the effective rate of interest charged per period will change. This is important, because depending on the variables, a cashout refi may give you a lower comparable rate in the first year or two but a higher rate for the remainder of the expected life. Youre planning and use case will then dictate which option makes more sense. 

For traditional loans, if you have an S Corp, the lender should have reviewed your 1120S and K1 in addition to your 1040. Any business in which you own 25% or more is going to be pulled into the analysis. In the vast majority of cases, business returns will be reviewed. 

If a proper cashflow analysis is keeping you from a getting a loan but you have good cashflow, then look into bank statement loans. This is the primary purpose of these - to finance good-credit quality borrowers whose only issue is taxable income. If you have at least 10% down, strong cashflow, and credit over 700, this will likely solve your problem.

I dont lend in WA, but Im sure there are several lenders on here that can handle this for you. 

Quote from @Dina Schmid:

@Patrick Roberts Really appreciate you taking the time to respond. It prompted me to do more digging including reaching out to the seller/developer directly. I asked for the paperwork regarding the road and easement and all I got was the plat - which I already had. He claims that state law guarantees us access, but neither I nor my AI assistants could find anything guaranteeing us access without a permanent easement. There was no paperwork of an easement provided. 

Early on, seller had requested we use his title agency and is still pushing us to use his title agency, which raises even more questions. I guess if we want to close we go with his agency (which I'm guessing will look the other way) or we do this right.

 Lawyer time. Have an attorney who is knowledgeable in this stuff and who represents your interests look over the documents you have and the deed, supposed easement, and records. Im not an expert on title stuff, but I would not feel comfortable moving forward with the purchase if I was in your shoes based on what youve described. If the property becomes landlocked due to a lack of access, it's worth significantly less. A good attorney will be able to review this and advise you on whether it can be fixed or if you should walk away. This isnt a lender issue - without clear title (and all of the access stuff that goes with that), no lender (other than maybe a private lender) is going to close on this loan. 

Quote from @Rocio Zamora:

Hi, Im a 10+ yr RE investor. I would like to get in touch with lenders in the SC market for purchasing and refi transaction.

Contact me for details.

Thanks

If you're not already familiar, look into property taxes closely for SC investment properties. Theyre not taxed the same as primary homes - typically the tax rate is 3x higher than what the previous year taxes show unless it's already not being used as a primary home.

These sound like issues that prevent the delivery of clear title. Changing lenders is unlikely to help. For the unrestricted access/road issue, this is usually spelled out in the easement that is attached to the deed and references the CCRs. If none of that and the HOA stuff is in place yet, very few lenders are going to touch this. It affects the marketability/value of the property.

Title issues are not my specialty, but these have been deal-killers for me in the past. I had a knock-down, drag-out fight with an HOA on a VA condo purchase loan late last year over an HOA bylaw issue. It was a very minor issue regarding the pre-sale process that had expired 20 years ago. Finally got a waiver from the VA, but it nearly killed the deal and took almost 7 weeks to close.

Maybe someone with title knowledge can provide better insight. 

Ive been on the fence about this as well. Curious to see what others think.

The points and prepays are where conventional will diverge from DSCR. Most DSCR loans will have 3+ year prepays and usually around a 0.5-1.0 more in points than a comparable conforming loan.