All Forum Posts by: Paul Jamgotch

I use IRA Services as a trustee and just paid $750 to get the IRA LLC set up through an attorney that has set up many for IRA Services (they gave me his name). I thought that was a reasonable price and he did a great job walking me through each step. My account is set up with the same CU as we do our other banking with. Feel free to PM me if I can assist.

Hi All,

I had someone PM me and ask for steps to setting up an investor/PML scenario between him and a family member. I decided to put my response up here in case there was some value for someone else.  Remember, PMLs are usually someone you know so I've skipped due diligence of each other. I do not have available funds right now but here is my spin, feel free to add/correct...

Once you know how you are going to compensate your uncle it is pretty simple. If he is funding the purchase and rehab then I suggest an 8% apr preferred rate off top of gross profits, then he gets X percent of remaining net profits... 20-40%*** because he is taking the entire financial risk. You should cover carry costs like utilities, taxes, insurance, etc. Your uncle should be listed on insurance as mortgagee.

If you are funding the rehab portion then the 8% pref. rate and small equity share (10%?) might be in order.

If you are in there swinging a hammer, etc. you should be compensated for your time, either in an agreed hourly rate or reduced equity position for your uncle***. If an hourly rate, you'd take this pay off of gross profits but after his preferred rate is taken.

Gross profits - uncle's 8% preferred rate payout - your labor (if any) = net profits. Share the net profits based on your agreement.

Put together a spreadsheet with max purchase price, realistic rehab estimate, and ARV including three reasonable comparable sales. If you both decide to move ahead with the project as outlined then proceed with an offer.

Your uncle should be prepared to show the seller of a property that he has the funds to purchase (proof of funds). Realize that you are asking him to set money aside until you have an accepted offer... respect this point; if he wasn't holding it for your project he could be investing it elsewhere.

After you have an accepted offer you prepare a state & county specific mortgage and a promissory note. The mortgage is pretty boiler plate and should be due in full in about a year. The promissory note should spell out the rate, term (usually one year or less), and profit split agreement. The promissory note should reference "the mortgage of same date".

Sign both documents in a front of a notary a day or two before the purchase closing. Bring to title company at close so they can record the mortgage (promissory notes don't get recorded but give your uncle a signed copy of both). Have title company return original, recorded mortgage to your uncle.

When you sell the home, have the title company prepare a "Mortgage Disc" that your uncle will likely sign in front of a notary and then will get over to the title company. You'll tell title company how to split remaining proceeds between you and uncle, which of course will be dictated by your agreement and promissory note.

I hope this helps.

There are not thousand of posts per day in the Marketplace... maybe tens and tens.

There are folks in marketplace that are allowed to place egregious mathematical lies to try and capture buyer.  83% APY... come on! There are lenders that post daily in marketplace yet won't continue dialogue with you on great deals when they find out you have a brain and won't allow yourself to be screwed by them. I was just curious if BP is concerned with such activity or would they continue to allow this so they can receive the monthly payments from these snakes. That's it. Because it continues I no longer subscribe. I'm sure I am in the minority though.

Also want to add that they key to maximizing returns with a 100% loan is less money out of pocket. If you have $20K you are better off buying three $100K properties (put aside $3K for each) that don't need work than one that needs $15K work. Sure, your payments will be higher but your investment will be very low. Again, just make sure your cash flow is zero or higher. Banking $6600 a year in equity with $9K is like 73% APY (3 homes). Banking $3600 a year in equity on one home with $15K out is 24% apy.

I think I am going to speak to my credit union this week.

@Astrid Cuas please don't think you have to do 29% for things to work. I've never done 29% over a year but have done 16-24% apy on single projects which only took about 6 months and notes that have returned 12%/year thus far. There is always a lag between flip projects and it's not easy to get all of my funds to work at the same time. Truth be told, my net returns for available RE capital has probably been closer to 14% over the past couple years.

I just wanted to show an extra layer of return that a 100% loan can net you. I do think that if you are able to keep rehab low and keep net cashflow above 0 each month [(rents x .5)-mortgage] you will still be in a good position because of the quick equity you are building with a 15 year loan. Quite honestly, 10-15% returns now are good in your scenario because some day those returns will be fantastic when rents are higher and you no longer have a mortgage. If you were able to do this four times in the next six years you would probably be able to retire in 20 if you chose to. That is a powerful thought.

If you happen to be super long term check out depreciation and 1031 tax-deferred exchange as an additional return boost. Again, life happens so this is cream and I wouldn't include this in your decision making.

It's tough to buy right these days but it can still be done in the right markets, I'm sure. Keep in mind that with a job you won't want to purchase something in a C-D neighborhood because the turnover will eat a lot of your time and/or profit due to PM costs. I think there is value to investing in a B/B- neighborhood and self managing should you have the time. I also feel it's possible to keep 55% of gross rents if you self manage and watch what you are doing. I'm not in the rental game though so maybe some landlords could comment on this point?

I would go to some local REI meetings and find the people that have been doing this for 10-20 years and try to get them to teach you how they bought right, managed right, and made a good return for themselves. For the cost of a couple good steaks you might get an education greater than any found at a college (or, you might only get a good steak out of the deal).

I sure wish twenty years ago I would have followed the advice I am giving you... back then, twenty years was an eternity so I wasn't as concerned about my future.  Kudos for you for looking into RE now.

Just curious how the board feels:

If BP is made aware that someone is blatantly posting false information to sell their service, loans, homes, investment, etc. should BP remove the offending post and possibly offending member if they continue the practice? Keep in mind, the person offering is obviously a paying member of BP but the person looking to possibly do business with that individual may not be.

I guess I am asking if BP has a responsibility to those looking for these services, loans, investments, etc. Or, is BP only responsible for their own financial well being?

Taking this further, could BP ever be financially liable if they continue to allow this type of posting once BP is made aware of the offense?

I should add, this has never happened to me.  I'm just curious about such matters in our (not so) new digital age. Feel free to direct me to other threads that might cover this.

@Astrid Cuas This is how I see it: Let's say your gross rents are $1200/mo, your payment on $72,500 is $573, and you put $14,000 into rehab.

1200 x .5 = 600 net income (taxes, repairs, occupancy, etc)

Payment on $72500 for 15 years at 5% is $573/mo

You end up with only $27/mo. However, over the next five years you will pay off an average of $308/mo. So, your return is $335/mo, or $4,020/year.  $4,020/$14,000= 29% annual return.

The best money managers in the world struggle to consistently return 11% for their investors without taking large risks. This is the edge you have as an individual investing for yourself.

Each additional year you pay about $240 more goes towards your payoff (and increases your net return by that amount). This increases your return by about 1.6% a year. After 15 years and loan is paid off, assuming no rent changes, your annual return on the $14,000 is about 51%. History tells us rent will be higher.

If property appreciates your return is even more, but most don't make that assumption when evaluating an investment.

If property goes down in value your return is less but it's tough to project this as well.

If you don't want to tie up your cash for a few years or you can reasonably expect a better return than 28% on your $14K then pass on this deal. And as others have said, you can easily refi into a 25-30 year to get cash out, assuming you have the equity needed after repairs. Personally I would not make my decision based on this... stuff happens.

Good luck! Please keep the board posted.

@James De Silva Maybe attend a Renegade Detroit Investors RE Club meeting to find that person. Good luck.

@Jason D.

Never did.  My investing went in a different direction from what I was planning on doing in late 2013. Good luck.

I'm still amazed the my IRA trustee turned that around so fast, @Andrew Davis . I highly recommend my IRA trustee to anyone looking for an affordable, no frills SDIRA solution. Since my account is  smallish it was key to have low fees ($24/quarter, $12/quarter per RE investment, $25 rush fee, etc.). I'm not sure if I am allowed to mention the name here so I won't.