All Forum Posts by: Sheldon Alex

Hey everyone. Here's a deal I'm going to break down pretty thoroughly on my process of evaluation. I got this deal from a connector within Gator. Before I looked at the deal, here's what I asked from him:

• The purchase and sale agreement
• Rehab breakdown documentation
• 2 HUD statements of previous deals
• Deal info (Property profile, funding, security, repayment plan, etc.)
• Title company involved in the transaction

What I also asked for was a term sheet from the hard money lender that was lending at first position. I wanted to get a breakdown of all of the costs associated with using them to fund the majority (90% LTC, 100% rehab) of this deal. The purchase price was $560,000, so I knew the costs would be high. 

The cost of points was $11,880, and the loan service and prorated interest rate fees equaled $6,126. Then the buyer was paying closing costs, which I estimated around $11,000. Then there's the $56,000 down payment from the borrower, thus signifying a pretty decent cash to close amount. 

How much was the HML charging in interest? They were charging 12.24%, bringing the simple interest amount to $5,148. As you can see from the images, the holding costs can add up tremendously. It can make or break a deal in some cases.

This project carried with it a estimated $97,000 rehab estimate as well; another huge cost. Then once sold, the listing agent would be getting their cut of $36,250. Lastly, there's the second position lender who would receive $26,200, but only if they accept the 20% flat rate. 

Now the borrower estimated a $925,000 ARV. So I put that theory to the test and pulled comps using Zillow. I searched for the most RECENTLY SOLD COMP within the SAME SUBDIVISION. There was a property that sold early October for $725,000. It had similar square footage in property size, similar square footage in lot size, was built 8 years apart, and was renovated.

Sadly, there was a $200,000 difference in their projected ARV and what I found. And they definitely needed that $200,000 for this renovation project, because as you can see, they and a lender who deployed the funds for this would likely be boarding a sinking ship.

Upon my discovery, I let the connector know that we wouldn't be able to lend on this opportunity.

Moral of the story: Go for deals with HIGH SPREADS.

Hey everyone. This is a rather interesting scenario I evaluated a few months ago. The borrower purchased the subject property at a VERY HIGH PRICE. Why? Because I came up with an ARV of only $550,000, based on comps that sold 3 months prior located in the same subdivision as the subject property.

However, notice there's $400,000 in FORCED APPRECIATION the borrower added to the property value. It's because he had a willing and able buyer who planned to purchase the property at a steep price of $950,000.

In my eyes, this project is as risky as it gets, even though the borrower was also a real estate agent that was waiving the listing side of the commission. Banking on one buyer to purchase a property at $400,000 above the estimated ARV can easily go sideways. Thus, I instantly concluded this lending opportunity being a NO GO. What are your thoughts?

Hey everyone. Here's a scenario I reviewed a couple of months ago where the borrower purchased a deal at $200,000 but only had an ARV of $280,000. However, the borrower projected a $21,000 light rehab job.

The lender would receive nearly $12,000; after all other expenses, the projected net profit is less than $20,000 for the borrower.

To me, this is one of those short-term deals where the actual rehab costs need to closely align with the borrower's estimates, while the execution of the project from beginning to end would require little to no problems or delays for everyone to earn a decent check. What do you think?

Good day everyone. This week I hosted my first Zoom training on the topic of Underwriting.

Here’s one of the slides I wanted to share with everyone. The image shows some of the things to look for when analyzing a property on the acquisition side.

Every acquisition opportunity is going to be different, with larger deals requiring more information.

But feel free to use these points as a benchmark.

On Monday this week I hosted my first Zoom training on Underwriting and it was a success!

That said, I thought I'd share an image of one of the slides I shared in the training. If you're a Connector or getting into underwriting, please review these points on some of the things to ask borrowers who want to raise capital.

Every lending opportunity is going to be different, with larger deals requiring more information.

But feel free to use these points as a benchmark. Happy investing!

 Yeah these types of situations can happen. Worst case scenario, it becomes a legal battle where calamity strikes every person involved. 

Quote from @Jay Hinrichs:

Quote from @Chris Seveney:

Quote from @Sheldon Alex:

Good day everyone. Here’s a quick example of a Private Money Partner funding opportunity I underwrote recently.
The borrower’s exit strategy is to Wrap the property to a homestead buyer. Below are the figures:

• Purchase Price: $225,369.78
• ARV: $199,000.00
• Mortgage Balance: $209,099.44

Great thing about wraps, however, is you can add equity, interest, and your own terms, which is what the borrower did here.
Via adding $101,000.00 in equity, the borrower plans to sell the property for $300,000.00 for a 30 year amortization and have the borrower place a down payment of $15,000.00. Thus, bringing the borrower’s principal and interest at $1,949.63.
Net Cash Flow for this may equal $808.66, with a 14.12% Cash-on-Cash Return.
In this scenario, the borrower is looking for $68,746.00 to fund the Entry Fee. Now the down payment from the homestead buyer wouldn’t cover a PMP’s loan. Thus, this borrower is offering 90% equity ownership, with the PMP receiving 90% of the cash flow to pay down the loan. Once fully satisfied, the split becomes 50/50.
When accessing this deal, here’s what went through my mind:

• A PMP would have to be okay with holding their funds long-term
• The borrower would need to be experienced with doing wraps, as it takes time to get willing and able buyer
• The borrower would need experience in pivoting to a different exit strategy should they fail to successfully execute a wrap
• With NO EQUITY on the property originally, and the PMP being in second position, the borrower would likely need to cross-collateralize if the PMP has NO INTEREST in taking over the property

My conclusion, from looking at this from a thoroughly analytical standpoint, would be only someone who has a moderate to high risk tolerance and cares about cash flow without pulling out and parking their money into numerous deals would likely lend on this.
Anyways, thoughts anyone? If a deal like this was sent to you, why or why wouldn’t you lend on this?

 what if the borrower stops paying and the property goes to foreclosure and sells for $150k at foreclosure sale?

its a foolish investment for the PMP.. hard pass.

 I appreciate the feedback! 

Quote from @Chris Seveney:

Quote from @Sheldon Alex:

Good day everyone. Here’s a quick example of a Private Money Partner funding opportunity I underwrote recently.
The borrower’s exit strategy is to Wrap the property to a homestead buyer. Below are the figures:

• Purchase Price: $225,369.78
• ARV: $199,000.00
• Mortgage Balance: $209,099.44

Great thing about wraps, however, is you can add equity, interest, and your own terms, which is what the borrower did here.
Via adding $101,000.00 in equity, the borrower plans to sell the property for $300,000.00 for a 30 year amortization and have the borrower place a down payment of $15,000.00. Thus, bringing the borrower’s principal and interest at $1,949.63.
Net Cash Flow for this may equal $808.66, with a 14.12% Cash-on-Cash Return.
In this scenario, the borrower is looking for $68,746.00 to fund the Entry Fee. Now the down payment from the homestead buyer wouldn’t cover a PMP’s loan. Thus, this borrower is offering 90% equity ownership, with the PMP receiving 90% of the cash flow to pay down the loan. Once fully satisfied, the split becomes 50/50.
When accessing this deal, here’s what went through my mind:

• A PMP would have to be okay with holding their funds long-term
• The borrower would need to be experienced with doing wraps, as it takes time to get willing and able buyer
• The borrower would need experience in pivoting to a different exit strategy should they fail to successfully execute a wrap
• With NO EQUITY on the property originally, and the PMP being in second position, the borrower would likely need to cross-collateralize if the PMP has NO INTEREST in taking over the property

My conclusion, from looking at this from a thoroughly analytical standpoint, would be only someone who has a moderate to high risk tolerance and cares about cash flow without pulling out and parking their money into numerous deals would likely lend on this.
Anyways, thoughts anyone? If a deal like this was sent to you, why or why wouldn’t you lend on this?

 what if the borrower stops paying and the property goes to foreclosure and sells for $150k at foreclosure sale?

Good question. If a private money partner were to get into this type of deal, they'd have no choice but to take over the deal and making every effort to get it cash flowing before it gets to that point. Thus, why this one is a very high risk deal. 

Good day everyone. Here’s a quick example of a Private Money Partner funding opportunity I underwrote recently.
The borrower’s exit strategy is to Wrap the property to a homestead buyer. Below are the figures:

• Purchase Price: $225,369.78
• ARV: $199,000.00
• Mortgage Balance: $209,099.44

Great thing about wraps, however, is you can add equity, interest, and your own terms, which is what the borrower did here.
Via adding $101,000.00 in equity, the borrower plans to sell the property for $300,000.00 for a 30 year amortization and have the borrower place a down payment of $15,000.00. Thus, bringing the borrower’s principal and interest at $1,949.63.
Net Cash Flow for this may equal $808.66, with a 14.12% Cash-on-Cash Return.
In this scenario, the borrower is looking for $68,746.00 to fund the Entry Fee. Now the down payment from the homestead buyer wouldn’t cover a PMP’s loan. Thus, this borrower is offering 90% equity ownership, with the PMP receiving 90% of the cash flow to pay down the loan. Once fully satisfied, the split becomes 50/50.
When accessing this deal, here’s what went through my mind:

• A PMP would have to be okay with holding their funds long-term
• The borrower would need to be experienced with doing wraps, as it takes time to get willing and able buyer
• The borrower would need experience in pivoting to a different exit strategy should they fail to successfully execute a wrap
• With NO EQUITY on the property originally, and the PMP being in second position, the borrower would likely need to cross-collateralize if the PMP has NO INTEREST in taking over the property

My conclusion, from looking at this from a thoroughly analytical standpoint, would be only someone who has a moderate to high risk tolerance and cares about cash flow without pulling out and parking their money into numerous deals would likely lend on this.
Anyways, thoughts anyone? If a deal like this was sent to you, why or why wouldn’t you lend on this?

Good day everyone! I’m back at it again! Some previous deals I shared came out to be complete duds! But this time, I thought I’d share a deal that, if everything executes to near perfection, would signal a victoriously blissful conclusion for the borrower and lender.

With this deal, I collaborated with three investors in the underwriting. In which case, they did a phenomenal job!

The borrower bought a deal that contained two properties on one lot. One was a SFR (4 bed / 2 bath) and the other was a duplex.

What was the purchase price?? $350,000. Thus a $341,777 loan was on the property.

The borrower rented one side of the duplex for $1,550. He acquired a tenant for the SFR at $2,550 a month, bringing his cash flow to $850 a month. The other side of the duplex he planned on renovating himself, with the goal of turning it into a STR.

Now, he was asking for $100,000.00 at a 20% flat rate for three months. A portion of it to reserve for refinancing and most of it to pay off credit cards and prior debt.

You maybe thinking, $100,000 to pay off debt? I thought the same thing when I initially looked at this deal. But then two of the investors I worked with analyzing this deal discovered an engrossing revelation…

Included in the documentation letter contained an appraisal report assessing the property at $610,000.00!! Not only that, the borrower got a pre-approved term sheet for $750,000 from a lender to refinance the property!!!

With that, the investor is challenging the first appraisal to see if there’s anymore value underneath the hood, which would signal a jubilant moment for him if more value is discovered.

But overall, purchasing at $350,000 was a complete steal!! With tremendous equity, positive cash flow, security against the property, and a pre-signed quit claim deed, a PML answering the call to action on this one could receive good short-term gains!

Overall would love to read everyone’s feedback. But on this one, I give credit to my collaborators identifying this one being a slam dunk!! I’m just a messenger on this one.