All Forum Posts by: Sunny Shakhawala

@Steve Stuart

I’d sell. Especially if the cash realized today would be greater than the cashflow over the next 10 years. So unless youre going to make 100k per year from this property (w/o discounting future cashflows), I’d look to sell.

There are only a few viable options. Most of them have been said, but I'll echo and synthesize:

• Encourage (nice word for "Force") the developer to switch realtors, reduce price further, sell at a loss, and bring money to the table to pay off all liens. 
  • If developer is a "good guy", offer him a FIRST position lien on his next project to help him get back to even. 
  • If developer is a doofus who loses all integrity when you suggest he eat the loss, get out and run. 
    • Consider eating some of the loss yourself. Getting 90% of your principle back today, putting the money back on the street, and moving on is better than dragging this out for another couple months.
• Take over the property. 
  • Request a payoff from the first position lien holder and if it makes sense, buy it yourself and assume a position of control. 
  • You can try your hand at selling it, rent it out, move in yourself, etc. etc. At least you're driving.  
• Foreclose - this is probably the last thing you want to do. I do not recommend this route.
  • Depending on where you live, this can take 6+ months and cost $10K+. 

I'm a Private Money Lender and this **** happens. I went through a similar situation as well. It didn't go over time as much as yours did, but the developer had to suck it up and come to close with a check for ~7-8K to pay me off. I've gone on to do many more and much bigger deals with this same developer because he showed me a level of integrity I had no choice but to admire. The big difference in my deal was I had the first position lien. However, I financed 100% of the deal so I'm not that smartest guy either. If you want to read my blog post detailing my experience, DM me. I don't know if I'm allowed to post it here and don't want to get in trouble for self-promoting. If you want to talk on the phone, DM me. We can talk through your options. Either way, good luck! Stay optimistic and be kind. Don't let this turn you into a sour grinch.

Just went to Darren Sagers meetup in NYC and this was sort of discussed... You could reach out to Nick Aiola, CPA and get his take. I feel like he might say, "If this is your first flip and you don't intend on doing anymore, just plan on eating the cost of taxes for this deal and move forward. Google: "Aiola CPA". He's virtual. Think his first consult is free.. Gluck. 

100% Sell.

@Pedro Urena,

Just like @Jaysen Medhurst said, you can structure this deal however you want. 

Here are my suggestions on putting it together. 

1) Protect your friend. They are doing you a huge service. Your #1 priority should be securing their investment. 

2) Get all your docs in order. At the very last, you'll need a promissory note, a mortgage, & a personal guaranty. 

3) Prepay Insurance on the property for 1 year and name your friend as the lender.

4) Use a reputable / reliable / recommended title company for closing (they will record the mortgage for you with the county). They will also provide a loan policy for your friend. 

As far as the terms go...

Private Money Loans float anywhere from as low as 0 points and 8% to 2 points and 12%. If this is your first deal, I'd model 2 points and 12% and make sure it still works. 

I'd say a maturity date of 9 months should suffice.

Depends on the deal, but I wouldn't want to be in it for more than 65-70% LTV as the lender.

So I'd probably require you to put 20% down and then work out a draw schedule for rehab. 

Hope this is enough to get you started. 

If you want to talk more about this, just DM me. Gluck!

Hey @Caleb Bryant, can you dive deeper into the financing?

Did you use a PML for the equity (~30%), the debt (~70%), or the whole thing?

What were the terms on the loan? 

I'd pass on that opportunity. If you're looking to make a "quick buck" on this particular opportunity, maybe try to help your relative sell the house by wholesaling it. Put it under contract for the $10K and try to sell it to an investor in the area for $15K+.  

For your first investment, I'd say get into a small multifamily (2-4 units) that needs work for 3.5% down with an FHA 203K loan. There's plenty of material on BP about househacking but you can read scott trench's set for life for a more focused approach.

Gluck with everything. 

Good question. I had to go into my QB to be sure. 

FYI: Commercial Asset...in order they are...

Payroll

Interest

Utilities (Mainly electric)

Property Tax

Insurance

Bonus Round: These aren't expenses but Sales and Occupancy tax would be top 5 if included.  

@Stephanie P. I am not worried about Default. Like you said, If I was, I definitely wouldn't take the deal. 

I'm just wondering if I should add a DIL to my closing doc packet as an added layer of protection. Based on the feedback from others with more knowledge than me, not going to add it. 

Thanks for your input! 

Appreciate all the feedback, @Jeff S. - I've been using a real estate attorney for the most part. I think I'll take your advice and try to figure out who the HML's are using for legal represenation.

Thanks @Jay Hinrichs & @Tom Gimer for chiming in.  Appreciate the thoughtful replies.