All Forum Posts by: Ryan Webber

You do not HAVE to disclose your profits, costs, or expenses to the title agent. We are talking about disclosing to the title agent in reference to the closing, not to the IRS. I always advocate disclosing ALL things to the IRS, and really you shouldn't be hiding anything from your title agent either. Yes, your HUD-1 from the closing is a source document for your accountant to do your taxes but so are your bank deposits. You aren't evading anything or filing false tax information. That's ridiculous. I pay parties outside of closing all the time and as long as I reference that on my taxes there is no issue of evasion.

My title agent is the exact opposite. She strongly prefers to not jump through RESPA regs on non-RESPA transactions.

You will most likely need to execute the assignment before the closing. If your buyer is getting any type of financing, they will need a copy of the executed assignment for their lender. The buyer is not a party to the contract until there is an executed assignment from you to them. The title agent will probably want a copy of that executed assignment also. If, at the very least, to know how to write up all the papers.

Waiting to execute the assignment may even hamper the legal enforceability of your assignment contract. My attorney did not specify if it was based on Texas statute or case law or just sound practice but advised me that I must give a copy of all executed documents to the buyer and/or seller. I didn't ask why on that one, though, so you should check with a qualified real estate attorney in your state.

The beauty of hard money lending (if done properly) is that when you have to foreclose, you make money. When you loan out at 50-65% of ARV, and you understand the business intimately, the risk is pretty minimal. Now will there be expenses in the meantime of foreclosing? Absolutely yes, but balanced out over 6 months those expenses will get covered plus some when you resell the property.

Hard money is not as much about choosing the right clients as it is about choosing the right properties.

There is some basic understanding of collections needed here, too. Legal fees for late pays are charged to the borrower, so if you aren't foreclosing you get paid. If you let a borrower get "seriously" late and THEN have to foreclose, that is your own deficiency. More than 30 days and they go to foreclosure, period. That's how I run my portfolio now.

I have a credit line right now at that. I have been with the bank for 7 years now. I would guess my track record counts for something with them. I've run hundreds of houses through it.

Its not unsecured. You would have to pledge the deeds of trust as collateral, also. All of the properties that go on it are at 30-65% of ARV, so the bank is pretty secure equity wise. I'll admit that most banks don't like the 5 to 1. I have another bank that will do 3 to 1 but I've only found one in town that will do the 5 to 1. Obviously, you're own financial position and track record will factor into it.

Bill Gulley,

RESPA ONLY regulates federally related mortgage transactions. It does NOT cover cash transactions or hard money loans or many commercial deals. Therefore in most wholesale deals you would not HAVE to disclose anything.

BUT the assignment contract would naturally specify the exact amount of your fee. The title agent will need a copy of the assignment to close the property so disclosure of the fee is a COMPLETELY irrelevant issue.

Also, RESPA does not tie into IRS regulations, either. That is a whole different thing. My title company doesn't even report anything to the IRS about my transactions. I am completely responsible for that.

Yes, Reggie Youngblood, a buyer can pay you part of or all of the assignment fee at the time of agreement or at closing. You do not have to go to closing at all IF you are assigning the property. When assigning a property, you won't have any papers to sign to close the transaction. You don't have to go to closing even if you didn't get all of your your assignment fee, but you would either need to pick up your check or have your title agent wire you the money.

I stumbled onto this topic today, and I just happened to be hitting someone up for a $100,000 cash today. So I'll share what I want to do with it. Its similar to Bill's but with a twist.

If I had a $100,000 cash, I would put it into a CD, leverage it with my bank for a $500,000 credit line, and get back into hard money lending. Many of my customers would be my same customers now with my wholesaling company. I'd charge 18% interest, probably broken down to 12% interest and 6 points on 12 month notes.

Let's look at the returns. If I loan out $100K at 18% APR, I earn $18,000 or an 18% yield/ROI/CCR. If I loan out $500,000 at 18% APR, I would gross $90,000. The going interest rate on a line of credit is 2 points over a Certificate of Deposit, so let's say 4% interest on the line of credit. 4% on $500,000 is $20,000 in interest. $90,000 gross minus $20,000 payment to my line of credit is a net profit of $70,000. That's a 70% yield on my money. You can't beat the returns. This, of course, doesn't factor in the latency of my money when it isn't loaned out, but it shows the power of leverage.

In Texas it doesn't require a mortgage broker's license to do non-owner occupant loans. There are some laws to understand but I already understand most of them, and I'd counsel for free with the best real estate attorney in town to find out any new statutes I need to know. He would do it for free because he would be drawing up my lending documents (deeds and deeds of trust) on my deals. I already have several entities to do business through or I could drop $1,000 with that same attorney to set up another one just for lending (he set up my other entities for me).

Obviously there are also basic components of real estate investing that are extremely necessary to understand. I appreciated Bill's description of some of those components. To be a successful hard money lender, you really need to have an extremely strong understanding of the fundamentals of investing yourself. I've seen several hard money lenders pop because they didn't understand the fundamentals of investing and I've seen several pop that understood the fundamentals but they weren't diligent in working them. Understanding and diligence are both necessary.

So either way, if you still don't know what to do with that $100,000, why don't you loan it to me? :)

Yes, I provide the Lead Based Paint Disclosure when I sell but I don't when I'm buying.

I had a scare one time with the Lead Disclosure. It was a 10 house package deal and I got a call 6 months later from the Buyer of one of the houses saying that the city was making him remediate the dirt around the garage, which I didn't even know you could remdiate dirt. While the last owner had it, the house had been cited by the city as having hazardous levels of lead near the garage. If he wanted to sell it on one of the cities down payment assistance programs, he had to do several thousand dollars of dirtwork. I shared with him that I had no idea about it and that I was sorry. I gave him the contact information of the seller, but I think he just ended up eating it. I don't think I would have had any legal liability, but it did concern me nonetheless.

In Texas, a Seller's Disclosure is required with some exceptions. The penalty for not providing one is that the Buyer can rescind the contract right up to the day of closing. So I follow a similar idea of Michael's. I don't ask for one, so technically it would give me an out (though I've never used it either).

If you are assigning the property, though, I would guess that this right of rescission would carry through to your buyer so beware.

Most of the time when I'm doing a double closing, I will provide one to my buyers. This eliminates their right to back out and decreases my liability. Its usually pretty empty but I'll put everything I know about the property on there. And whether I give my buyer a written disclosure or not, I always verbally disclose EVERYTHING I know about the property to my buyers. My business model is based around an investor walking into a total piece of crap house with eyes wide open.

I wouldn't necessarily assume that these specific investment companies are buying in serious volume off of the MLS. My point is that there are most likely some investors in any major market who are seriously tapping into non-MLS purchasing techniques. Direct marketing to homeowners is an extremely effective way to find high equity deals, and I would not assume that there aren't plenty of serious investors in most markets that understand that fact. Trustee sales traditionally attract very serious investors too. Those sales would not show up via the MLS either.

My experience is that most investors, even experienced ones, do NOT utilize multiple buying strategies consistently. The Trustee Sale buyers buy the vast majority of their properties through the auctions. The guys that I know who buy through the MLS primarily, don't do direct marketing. The short sale guys I know only buy through short sales. I think most investors find something that works and then they get super focused on that one strategy and rarely branch out to experiment with other strategies.

Actually thinking about it, most of the investors that I know that consistently use multiple strategies are wholesalers. I'm assuming that might be because they have a strong focus on finding MORE deals as quickly and effectively as possible.

Again, my main point, Jerry, being that your statement that investors in your market are buying most of their deals from the MLS is probably not a full or accurate perspective of your market. Most realtors in my own town have no idea how much is bought by wholesalers and investors like myself. They would probably argue your same point with me in my city just because they don't interact with the wholesale market. They don't understand the underground market that goes on everyday right under their noses.

I think its extremely important to be very practical when first starting out, especially if you have limited funds to invest.

An entity protects your personal assets from your business liabilities, so the first thing to consider is this:

Do you have significant personal assets to protect?

You can't get blood out of a turnip, and any attorney worth their weight in dirt knows that. They don't chase empty pockets. If you have nothing to protect, why waste money protecting it?

I would suggest focusing all of your effort, energy, and money on making some money first. Then worry about protecting it. Your initial energy, motivation, and money is so crucial and fragile in the beginning that you need to assess how you spend them with a fierceness. Your absolute primary focus (over 80%) of the resources you have should be spent on finding a smoking deal to wholesale.

Anything else is the perfect strategy to do NOTHING in the wholesaling business.

I would guess Jerry Kisasonak is inferring that they are investors because the financing type showing on the sold listing is cash.

No, non-MLS sales don't show up in the MLS, but there are ways to track them via public records, and in disclosure states (which are the majority of states) you can even find or figure out the sales price.

As for how would you know what the majority of investors are doing without knowing the majority of investors? That's a good question, Will Sifert. You wouldn't know. And if you did know the majority of investors and what they were doing, that would mean you have a massive buyers list of investors. At that point why would you need to list properties on the MLS and pay realtor commissions to sell to investors that you already know? Just call the investors directly.

I would suggest the likely possibility that there are investors buying a tremendous amount of properties in your area NOT through the MLS. Most investors/realtors familiar only with the retail side of the business have no clue about the volume that is done on the "underground" market directly between investors and homeowners. Until you break into and fully integrate into the wholesale market, there really is no way to understand the volume that is done under realtors noses.

I, myself, use to think that this fact was only true in markets like mine that didn't see the bubble, but now I've discovered underground wholesalers in major bubble markets. These are markets that most investors think you HAVE to buy via the MLS with REO's or short sales to find a deal because there aren't any equity deals left. But these wholesalers buy very little if ANY via the MLS.

Aaron Mazzrillo in Los Angeles is a great example and K. Marie Poe, too. Right in one of the biggest popped bubble markets. A market that most investors would argue with you that the only deals to be found are via the MLS with REO's and short sales.

Just because you don't know its there, doesn't mean its not happening.