All Forum Posts by: Patrick Roberts

A couple things on this. First, you will need two years of work history to qualify. If youre just starting school and working, this will be an issue. Doesnt have to be two years of work in this particular job, but you need two years total.

Second, most school stipend/GI Bill BAH/education benefits cant be used because they are not considered stable and predictable. At a minium, they would need to be expected to continue for at least 3 years into the future and not be temporary in nature.

Not saying this cant be done, but this is the starting point.

 7a and 7a Express used to require a 5% minimum contribution from the borrower along with a subordinated seller carryback to make up the rest of the borrower's contribution to 10%. From what I understand, the program recently updated to where the seller carryback cannot receive any payments until the SBA-guaranteed first lien is paid in full, meaning your seller will have to wait a very long time to receive payments. My guess is not many sellers will agree to this. 

All of this is predicated on the lender giving 90% financing. In this environment, Id be shocked to see that kind of leverage unless you have decades of direct experience in that industry combined with a high tangible net worth and a healthy DSCR on the acquired business, similar to what Don was saying. CRE lending and bank exposure is in a rough spot right now - lenders are pulling back on leverage and risk across the board.

Brokers and loan originators/officers will say all kind of things to get you to put an app in so they can sell you on a different product. This is no different than the advertisements that are all over the place in every industry - "prices as low as X." The reality is very, very few people will get that as it's a unicorn offer that .001% of people qualify for. 

Equity from a partner/JV is likely the only way. The SBA recently changed rules around these programs. Borrower's have to bring their own funds (equity) to the project. Subordinated seller financing wont work, either.

Also, if you havent already talked with a lender about this, I recommend you do so. 90% LTV is rapidly turning into a unicorn.

 I understand the sentiment, but the last thing I want is more regulation and more hands in the pot. A prudent seller would choose to be represented by an attorney in a situation such as this, but I dont want the government telling people they have to pay for an attorney for their own good just to sell their own house. 

I'd much rather see criminal laws that are aggressive when it comes to fraud and deceit/sleight of hand. If a property seller makes a poor decision voluntarily, then sucks to be them. But if a wholesaler/solicitor uses fraud or deceit/deception to gain consent where they wouldnt have otherwise gotten it from a party that was not deceived, then this could easily fall into the realm of fraud and criminal prosecution would be appropriate. Now, parsing out fraud and deception vs "sales tactics" will be tough, but that's the nature of the beast. 

I will caveat this with the fact that I am fiercely libertarian and detest the idea of the government being involved at all in a transaction between two parties, but that's just my $0.02. At the rate we're going, pretty soon we're going to need attorneys and government regulators to certify the purchase of a bagel for breakfast.

For investment properties, look into DSCR loans. You'll still need good credit and 20%-ish as a downpayment, but this will address the lack of income problem. For a new primary residence or any kind of investment/vacation property on a Conventional loan, you'll need good personal income to qualify.

Local banks and credit unions will be your best bet. This process will include a traditional mortgage underwrite. 

 This was my immediate thought - an underwater note in today's environment likely means it was poorly originated, which indicates other problems as well. 

If you're getting enough of a discount on the note purchase to provide sufficient equity coverage for you (not the borrower), then this likely mitigates much of the risk. Overall, though, I would think that the default rate will be higher on these in the long run as the borrower is much more likely to walk away if things get bad. Are these owner-occupied properties vs investors? At least with owner-occupied, there is usually some emotional equity that ties them to performing on the note. 

That being said, I personally wouldnt buy notes where my total investment is more than about 70% of the property's current value, which implies a massive discount on a note that is "performing". I doubt many sellers in today's environment are going to accept 30-40%+ discounts on performing notes. Maybe a partial if the yield is high enough?

I would also question why the note/property is underwater in the first place in today's environment.

If your credit isnt good enough for a Heloc, you'll likely have a hard time getting any kind of DSCR or permanent investment financing.

 Awesome. July is pretty slow, but things are typically full speed for August at the meetups. It's two hours well spent. Lots of solid investors to network with.