All Forum Posts by: Account Closed

I am posting this only in the interest of completeness.

Julian, it is not the lack of income that will prevent you from getting funding, it is the lack of EVERYTHING else that matters.

You have no track record with commercial property. So, unless you have experienced partners this is a big strike against the lender writing the loan.

You are forming a brand new LLC to hold the property and be responsible for the loan. The lender will want a personal guarantee but since you are NOT a US citizen their risk goes up and your chances of getting the loan go down.

You may or may not be able to prove to the lender the property cash flows well and in all aspects is a great deal. But, you have never done that before so they will be looking for anything, absolutely anything, to refute that contention.

Your personal income would matter only from the standpoint of how you manage your finances. If, for example, your taxable income was zero because of the way you bought and managed your investments it might be okay. If your income is zero because you can't keep a job and have decided you are just going to go out on your own, well, that would never be okay.

However, no commercial lender reasonably expects your personal income to be a source to repay the loan. That is why they have things like quality of collateral and revenue milestone clauses in their notes so they can call the note or replace you as the manager long before the borrower is seriously upside down in the deal due to declining values or company revenues.

So, in short, unless there are some details you haven't shared the consensus is you are not likely to get the loan you are talking about. But, it is not (solely) because of $0 income.

Originally posted by Julian Ferreira:

Ok so i can start the LLC and use it to apply for the loan, but I need to put the responsibility to pay the loan on myself, correct?

So lets say my income was $0 and my credit is great, over 700. When buying commercially, and the property has good cash flow, I could still get this loan?

The income of the property will be the income considered for the loan. I'm not sure 700 is all that "good" any more.

The lender will also look at your experience. Have you owned or managed other commercial properties? How did they perform during your holding tenure? Also, where are your organizing funds coming from as you form this new LLC? What about the down payment? The expected reserves of the LLC and of the property? Who are the other principals in this with you? What is their experience?

It isn't just a matter of the property having good cash flow. It is also a matter of whether you increase or decrease the lender's risk when they invest in you and your new business by writing the loan.

This makes no sense.

First if what you write is true, BoA is asking you to do something patently illegal.

Second, BoA owns CW.

Mike, sorry if my paraphrasing one of your earlier posts about lumping your maintenance trips together offended you.

You and I are in totally different businesses. You are in the business of providing government subsidized housing with many if not most or all of your units. As such, your tenants have a much lower expectation of how and when anything is addressed.

It isn't that our tenants demand we treat every maintenance issue as urgent. Nor is it that we treat them as urgent when we receive them. But, the primary way we are able to command above market rents in most of our properties is by having a really great customer service reputation.

In many ways I envy the business model you have adopted. The expectations on you and your company are lower than we experience.

After reading many of your posts here I started a test project. I am not going to name the city but it is in South Carolina. We have started buying properties with the sole intent of participating in the Section 8 program. It appears there is a great deal of money to be made but only if we run it completely separate from our other holdings to keep the costs to an absolute minimum. So far, so good.

Who knows, it might grow to be the dominant part of our business.

Originally posted by Alex Locklear:

I'm going to sell to retail buyers at a discount...therefore wholsaling to a retail buyer. The difference between these houses and a "simpler deal" is equity; equity with no repairs. I think a buyer would show much more praise to their realtor if he brought them a home they liked with 15k in equity versuses one with maybe just a couple thousand.

Okay, but now let's look at the reality that exists behind such a deal.

Suppose for a moment, you are that buyer's agent. Your buyer has given you the criteria they require to purchase a house, maybe it is even one to live in.

Now, you learn about this discounted price house and for the moment let's further suppose you want to take it to your buyer. I will explain shortly why that is not likely, but suppose for the moment you want to take this deal to your buyer.

Who is the owner? Not the one holding the option. Who can bind the deal for a sale? Not the owner by themselves because someone has an option on it. Writing the offer up in a way your broker will find acceptable will be time consuming if for no other reason the validity of the option must be verified. The broker is going to require BOTH the owner and the option holder to sign the agreements. That is if you can convince the broker it is even worth the trouble to do this for a REDUCED commission deal.

See, since you are selling at a "discount" their commission is reduced as well. So, compared to other deals out there the agent and broker have to work harder for less money than if they found something for their buyer on the MLS or something that is currently a desperate FSBO where the agent and broker might be able to snag the listing and pocket even more commission.

Now, unless part of the criteria the buyer gave to their agent includes some discussion on discounts off FMV or built in equity your fantastic deal won't get much more than a passing glance from a buyer's agent, or any other kind of agent for that matter.

Originally posted by Alex Locklear:

I have a couple of houses under option that I'm trying to "wholesale" to retail buyers.

Figure out what you are really trying to do. You are either going to wholesale the houses or you are going to sell to retail buyers. They are not the same and a retail buyer has certain expectations going into the deal.

Well, it might or might not be legal. A lot would ride on how your option is worded and how it was executed. But, it isn't going to matter in this market. No buyers agent is going to wade through the issues to get permission from their broker do a deal like this. They will just show their buyer any number of other much simpler deals and pocket their commission.

As with most myths/legends there is a grain of truth in them.

Originally posted by Julian Ferreira:

Hi, I'm Canadian.
I'm planning to start a new LLC in a state (possibly Nevada), so that i can use it as the entity to apply for a mortgage on a small apartment building (8-18 unit).

Unless the apartment building is in Nevada, don't waste your time and money.

Yes, it does happen all the time, every business day.

But, and there is a really big one here, if this is your first commercial deal, it won't happen for you easily.

This is where everyone gets really confused.

Here are the facts. With a commercial business loan the lender is not looking to your income as a source to satisfy the loan. They absolutely will look at your credit to determine the likelihood you are able to run the business they are funding. Specifically, they will be looking to see examples of poor money management and examples where you did not pay obligations as agreed. So, if you have crappy credit, a commercial loan is not in your future. It doesn't matter if that business is new or old. And no, not even the "seasoned shelf corp" scam will overcome that, lenders will look at the financials of the owners unless and until you are publicly traded with a long history of audited financial reports.

This is a great big, "it depends" area.

Any experience with this?

Thanks.

Yes, over 24 years worth.

Originally posted by MikeOH:

This entire idea of a "credibility package" is just another guru idea meant to sell expensive courses; training; or mentoring. It's silly!

I disagree and while I don't think it is critical to put together this kind of package for presentation it is very helpful for a new(er) investor to help them figure out what tangible and intangible resources they have to find and close the deals they think they want.

Where this does become critical is if you decide you don't want to go it alone and start to join together with other investors to leverage resources and knowledge. In that situation, this type of exercise leads to your "resume" as an investor.

Of course, this would never be applicable to Mike because he is a lone wolf who attracts tenants who are willing to wait for enough maintenance items to accrue to make a trip to their unit worth his time.

In other words, in my opinion, his business model does not lend itself to needing this type of self examination and therefore he is unable to comprehend the benefits of it. That doesn't mean there aren't any.

I am by no means an actuarial and wouldn't want to be one. We do use one on a semi-regular basis as we adjust our risk models for investment evaluation. They are absolutely worth every single penny they cost.

The one we use also has an actual personality which is rare in that profession. My interest and curiosity in the FICO as a risk assessment model was sparked by conversations over adult beverages with the actuarial we use on a contract basis.

As we first talked about it, I was struck by the absolute fact the model is totally devoid of any attempt at addressing human behavior. Hence, my point about it being flawed because the data it relies upon is not reliable and easily gamed.

Some of the other things our actuarial mentioned about the FICO model is it fails to look at how the borrower evaluates and adjusts to risk. One big area is in the down payment.

Sure, intuitively, everyone knows the more a borrower puts down the less likely they are to default. But, the models FICO built for all lenders never took that into account even in a subjective manner.

In other words, a more accurate model would adjust the FICO based on the proposed down payment. Put 20% down and your score goes up x points, for example.

Another big area is as I mentioned before, since the FICO became all important in the financial lives of borrowers, some figured out ways to alter the data to provide an inaccurate picture of their financial history. That is what I meant by "gaming the system".

It also fails to address any macro economic issues like the health of the local economy.

The list of short comings is long and no doubt some will be addressed over time. But, FICO suffers the ultimate same failing as any other statistical gating model. It cannot overcome chaotic events and behavior.

Granted, many of the things it does not address could not be addressed easily or quickly, like economic conditions. But, that does not negate the problems with the model.

Check your local codes because they may have specific inspections required if you are permanently capping the gas line and closing it up in the wall.

Typically, you would cap the gas line, cap or remove the vent, run the electrical service for the new heater, install the heater and close up the wall.

But, again, your locality may have specific requirements to deal with the gas line. A quick phone call will clear it all up.