All Forum Posts by: Shiloh Lundahl

@Jay Hinrichs i'm not planning on scaling this model very big. I've changed some of my goals over the last couple of years. my goal is to get to $50,000 a month in monthly cash flow. My plan for doing that is to acquire 40 properties with partners and pay off 40 of my own properties and have them free and clear. Also, optimize the new assisted living facility that we just purchased in January. Then buy out my partners on my Costa Rica properties, and just host retreats in Costa Rica, visit my cabins, collect cash flow, and enjoy my wife and kids and travel around visiting friends in my awesome motorhome which I have not purchased yet.

@V.G Jason Well that was a lackluster response.  I was hoping for something a little more lively. Let me break down the numbers for you on the debt model versus the equity model.

Equity Model for the house on Noble:

Return for the money partner for the debt Model for the house on Noble 

First position lender 180,000 at 75% of the $240,000 ARV

Second position note from private money lender for $12,000 leveraging the property to 80%.

If the option gets exercised at the end of the option period to keep the scenarios the same, then the total gain for the $12,000 would be $3,600 for the 3 years at 10%, which is what I would offer in second position for a note less than a $25,000. 

So the risk is lower, as long as the market doesn't drop 20% and stay that low for the next 3 years. 

The equity model has risk in that it is not going to go directly as planned.  The tenant may decide that they want to move out rather than exercise the option.  We may then sell the property earlier or we may bring in another tenant buyer for a shorter period of time. We may make more or less than planned.  But if things go more or less as planned then the money partner leaves in $29,409.67 but then gains the same as I would which is $36,933.17 over a 3 year period of time. Which is about a 42% return each year.  

So it really just depends on which model the money partner would like. The debt model or the equity model. 

And to respond to your statement that you can post your opinion about what you would like. That is definitely true, however, I would suggest you only post your opinion on things that you have a lot of experience with so that you don't come across looking foolish.

@V.G Jason I didn't think you would continue to comment on this post, but since you did, I consider it fair game. 

So let me see if I am understanding correctly. You criticized the partnership model that I proposed even though you don't do partnerships yourself. Then you criticized @Jonathan Greene because his posts highlight services that he provides. Then you criticize @Don Konipol saying that he is predatory in partnerships, all while you don't share any information about yourself in your profile. Sounds like a keyboard cowboy to me; one with all hat, and little cattle.

Maybe you should apply to be an advanced moderator.  Not a normal moderator who makes sure that people who post are posting according to the rules, but an advanced moderator that is an authority on all things that he doesn't do himself, and one that can protect the unsuspecting new investor from dangerous partnership structures and people like me, Jonathan, Don and anyone else you may have on your list. 

***ATTENTION BIGGERPOCKETS MODERATION TEAM***

I would like to nominate V.G Jason (I know his name and profile may be a little cryptic but just go with it) for a promotion to Advanced Moderator or Supreme Moderator if it suits your fancy.  He valiantly is protecting new and vulnerable biggerpockets members from bad partnership models and scoundrels like myself, Jonathan, Don and possibly others. 

My goodness! The next thing you know V.G Jason will be accusing me of trying to promote my real estate investor retreat for high level investors that I am hosting at the end of April out of my properties in Costa Rica that you can find out more about in my profile.  And I haven't even mentioned that retreat in this entire post.  Some people, you know what I mean! Always accusing.

I fully intend for this post to be removed by one of the actual moderators like my friend @JD Martin, but hopefully it will be left up for a just a little while until it gets a few laughs.

@Alan F. the money partner would be 100% secured. They would be a partner on the LLC and the LLC would own the property. So their capital would be fully secured by the real estate.

Thank you @Don Konipol for thinking this model is NOT evil. I agree. 

I am interested in your causion and I'd like to know more details about that. I have probably done between 80 and 100 lease options and we haven't had any issues with litigation or anything. We try hard to follow the regulations, including the Dodd Frank Act. So I'd be interested in seeing what I might be missing that could be a possible danger with the lease option model in particular.

Also, I would be interested in hearing some other models and investment strategies that would be better deals for passive investors. If you wouldn't mind sharing, that would be great. 

@Josh Young this is probably the best question that I have gotten on this thread so far.

The truth is, that is the way that we scaled at the beginning. We just brought on debt in second position that we would pay 10-12% interest on that would leverage the property up to 80%. Sometimes though, we had to still leave some of our own money in the deal and we had to keep our own money in reserves. The structure that I am proposing is less profitable for me, but I also wouldn't need to bring any of my own money into the deal unless there was a loss. Also, I would get paid $5000 of my portion of the profit upfront, which is nice not to have to wait the 3 years for me to get any type of payment from the deal, considering the fact that I'm the one that is putting in all of the work upfront in order to put the deal together to get paid when the deal sells.

@Stuart Udis you say things like a “red flag” almost as if you don’t believe what I am saying or think that I am making things up.

They are 2 different properties.

Latest property: 14004 W Noble Cir, Casa Grande, AZ 85122

https://www.zillow.com/homedetails/14004-W-Noble-Cir-Casa-Grande-AZ-85122/8705508_zpid/?utm_campaign=iosappmessage&utm_medium=referral&utm_source=txtshare

The other property that I referred to: 3893 W Long Dr, Eloy, AZ 85131

https://www.zillow.com/homedetails/3893-W-Long-Dr-Eloy-AZ-85131/88899431_zpid/?utm_campaign=iosappmessage&utm_medium=referral&utm_source=txtshare

And I do need to apologize and to make a couple of corrections. I was just giving you numbers from memory while I was responding at the supermarket last night. I checked the actual numbers this morning before responding to this message. So here are the accurate numbers. We actually bought the property on Long for $210,000, but we closed on it at $285,000 and we put about 7k to 8k into repairs. I bought the property from a wholesaler that was working with the agents on behalf of out of state family members of the owner who had passed away if I remember the situation correctly. I thought the appraisal would come in at $290,000. But I was wrong. It came in at $357,000. I didn’t share the actual appraised value before because I didn’t want it to seem like I was just making numbers up to make my partnership model look more enticing. And to be honest, I think the appraisal came in much higher than it should have. Zillow’s current estimate is $299,000, and I think the current value is probably around $310,000 to $315,000. So even though I get deals like this sometimes. Most of them are not like this. So I don’t tend to use the appraisal on this property as an example of what is normal for my deals. My average conservative deal creates about 70k in equity.

@Drago Stanimirovic we actually do have a fund. We created it about three years ago in order to help us convert a mobile home park that we own in the center of Florence, Arizona into a tiny house village. We were also able to use the fund to acquire and fix up other mobile home parks. Because of the rates went up dramatically in 2022, we have held off on building a tiny house village. We put the money into some repairs on some of our other parks which we are now putting on the market for sale. When those sell, will be paying off the fund and we will have some cash to get started on the tiny house village.

There are pros and cons to the fund model. You always have to pay interest while money is invested into it. That’s one of the cons because that money might not be deployed in a deal and it may just be sitting there. But, you can use the fund money as part of the down payment for different projects that are a lot more expensive.

Since these deals are pretty small, I’d rather just have one off investors that want one to three properties and that want to be pretty passive, do these deals with me.

The management of the 20 properties shouldn’t be too difficult. We just sold about 50 properties in a couple of our mobile home parks so my project manager has a lot more time on her hands and I like to keep my crews busy so we have the infrastructure to handle it.

@Stuart Udis I would say the way I buy is unconventional. Let me give you an example

Let's say you buy a house under market value at 70% ARV and it needs very little work. Let's say just a roof repair and a little bit of dry wall and paint and replacing some door jams and baseboards. Total work is less than $10,000. Let's say the discounted purchase price is $200,000 but it could easily appraise for $280,000 with the $10,000 of repairs. Sounds like a good deal right? If you get a DSCR loan at 75% of the ARV then you could get a loan for $210,000 and only need to leave the amount of closing costs in the deal, let's say $15,000 with both sets of closing costs and holding costs. And then let's say that you get an option fee for $5000 from somebody who wants to purchase the property from you within the next three years. So really you have $10,000 left into the deal. You may also cash a couple hundred bucks a month

This is how it should work. However, this often isn’t how it works. Because you found a really good deal and only had to put in $10,000 into repairs, and you were able to get it done within a couple weeks, the bank is not going to give you 75% of the $280,000 that it should appraise for. In fact, the appraiser may not even appraise it at $280,000 even though the comparables would point to that value all day long. The reason being is because you got such a  good deal. If you invest a lot then you know what I am talking about. And because you purchased the property for only $200,000 and only put $10,000 into the repairs, the appraiser is going to have to explain to the bank why they think the value is $80,000 more than when you bought it a few weeks ago if you only put $10,000 into it. So it’s likely that the appraiser will appraise the property lower than it should be appraised for. And not only that, but because you’ve done all of this work within such a short timeframe, the bank will either give you 75% of the after repair value or 80% of what you purchased it for plus what you have it for. Whichever is lower. So unless you want to wait a seasoning period that may take between 6 and 24 months, depending on the bank, the most you’d be able to get the loan for on this property would be $168,000.  Now instead of leaving only $10,000 in the deal, you are now leaving $42,000. You’ll be cash flowing higher because there won’t be as high of a loan on it. However, you need to leave four times the amount into the property which will dramatically slow your ability to scale your portfolio.

I buy the property is such a way that I can get the property refinanced within a short period of time (sometimes just weeks) at 75% of the ARV without waiting for seasoning. This has probably been the one thing that has helped me scale my portfolio so much and so quickly within the past 6 years.

So the things that I would bring to the table that a new investor wouldn’t have access to (at least at the beginning until they build their own systems and networks) would be my knowledge and streamlining of getting financing, having deal flow, using vetted and skilled subcontractors, discounted prices on materials, systems in place to find tenant buyers, and streamlined refinancing and management in place

It is similar to turnkey, only you don’t have to put 25% down and you walk into equity and the exit is already planed and the tenant buyer gets connected with a lender upfront to help them get ready to exercise in the option within 3 years.

So that is what makes this different than other models. And just so you know my rate of tenants who exercise their option is about twice as high as the average rate. 

@V.G Jason You seem upset.