All Forum Posts by: Phil Moore

@Chris Seveney and @Marco Bario Thank you both for the input! David Putz was able to share a video with me about the 70/20 structure that I think may be super beneficial to those folks who may be looking to get more cash upfront. 

To what extent does a personal guarantee or lack thereof impact the discount rate of a note?

@Don Konipol I appreciate the response on this. That explanation paints a clearer picture for me. What I want to do may not be feasible without a significantly larger influx of capital. Thank you!

I suppose that I should have done a bit more research into the nature of promissory notes as financial instruments to answer a couple of my own questions. I found the info about the sale of a note before the maturity and what goes into the valuation. 

https://math.libretexts.org/Bo...

I do, however, still have the question about the terms surrounding the deal that would make it enticing to the noteholder to sell the note prior to its maturity. Also, does the preexisting relationship hinder investing in such a note once it is sold?

Storytime: I've recently taken a deep dive into the world of creative finance specifically in regards to owner financing and subject-to. I've been generating a number of offers for sellers to finance their properties to my company on terms that work for both parties involved. Often times these terms include 7 or 10 year balloon payments. While the terms of the deal make for a solid investment for the seller, I find often times that folks simply aren't willing to wait until the balloon is due to reap the rewards of their investments. This is a problem that I know has a solution. I put on my thinking cap to figure out the solution, and I want to know if the "solution" that I have devised is possible, feasible, and legal.

My questions: Is it possible to sell a promissory note from a purchase money mortgage? If so, how exactly is this done? What kind of terms would make it enticing for a seller turned lender to do such a deal? 

If it is possible to conduct transactions with this kind of note, is it also possible to purchase a portion of the note in conjunction with a group of investors if one is also the borrower on the underlying note or has a relationship to the borrower? In other words:  can you have the cake, and eat a piece of it too?

I would appreciate any insight to this. I don't know if I want to have to go back to drawing board...

I might just have to check that out! I'm late to the game so I'm still making my way through One Piece.

As an out of state investor myself, I can attest to the difficulty of finding good contractors who are able to perform when you don't necessarily have eyes on everyday. To echo Kerry's point, it is absolutely invaluable to have boots on the ground to oversee a project. It could be literally anyone you trust to just look at it and ask questions. 

I find that at a minimum if you don't have boots on the ground, you need to set the standard early on for what it is you're looking for and when you want it to be done. Set-up payment gates to get that work done when you want it, and have them send you photos of their work to verify. It's always easier to back off in the future than it is implement this kind of rigorous attention to detail late in the process.

To address your point about capital, I would suggest looking into companies that offer personal lines of credit. While not ideal, these LOCs will allow you to get the work done on-time and on-budget when you don't have to interrupt work to find the money.

Once your rehab is done, the major headache will be out of the way and it'll be back to business as usual. Keep at it; you'll get back out what you put in and then some.

Taking the first steps are crucial. It's easy to get caught in a cycle of analyzing deals but never actually taking any action. Welcome!

Any good anime you're watching right now?

@Steve Vaughan The way I'm reading is that you've been able to sell your purchase money mortgage somehow. Is there a way that you could explain this process to me? Who would buy that, and how exactly would the investor make money on it?

It's my understanding about DSCR loans that they use prevailing market rental rates to determine the debt service coverage ratio. You may, therefore, have a problem securing the loan if you are relying on the higher student rental rates to secure the loan. You could circumvent this particular issue by having the property appraise at a high enough price to justify the loan. Most DSCR products you will find are about 80% LTV.

Once you secure the loan, how you run the property is of less importance so long as it meets the underwriting criteria for the respective lender.

I think that there is a lot to unpack here, so I’ll try to do my best to address your questions. You’ve mentioned that you’re new to real estate. What has engendered your desire to get into off-market deals. What about turn key deals? I ask because it helps to speak in specifics so that you can maybe narrow down what it is that you want to do in the real estate realm.

Off market deals are one thing that typically have their own set of issues. More often than not they involve a distressed property with a motivated seller. 

Turn key deals are another thing that typically involve investors who are looking to either sell to an end buyer or another investor who focuses on turn key rentals. 

It will be difficult for you to find an "off market turn key" deal in the traditional sense of cold-calling, driving for dollars or whatever other creative lead generation tools that exist for finding motivated sellers. To address your question, you may find off market turn key deals if you get in touch with local investors who specialize in turn-key rentals and you get on their list of buyers. That is likely the sure fire way to do what you want. Finding that list, however, and getting connected with those individuals is another thing entirely. To do so, I'd start with searching around BP for an REI group in your area.

On the other hand, you may find that your inexperience works against you here. From an investor’s standpoint, what would make you a good buyer? Do you have a tidy sum of cash that allows you to close quickly on a deal? Or maybe you have a partner who has the money and you’re the who finds the deal? 

I ask these questions to give you some things to think about. The world of real estate is big and wonderful and you can pretty much guarantee that whatever you want to do in it, someone has done it before and has written a book about it! Whatever it is that you want to do, always work to identify what is your most important next step. That way you can be sure to be taking actionable steps towards accomplishing your investment goals. 

Welcome and good luck!