All Forum Posts by: Ellis San Jose

Dion is right on the money:

The info given is by the seller is screwy with the 8% thrown in there.

I am going to assume that this was a $33,000 note 16% interest, 7 yrs (84 payments fully amortized) that the borrower has made 8 payments so far, The amortization table shows a remaining balance of $31,193.80. It looks like the note seller is trying to sell you a partial where he keeps a chunk of the payments so your yield would be 8% , he would have to either give you $514.35 a month & he takes the balance of the $655.45/month payment, or the seller is expecting you to pay a premium for the note of $42,053.06 (um...no) to get your 8%.

Definition of Convertible Note: courtesy of Financial Times Lexicon

Convertible notes are often used by angel investors who wish to fund businesses without establishing an explicit valuation of the company in which they are investing.

When an investor purchases equity in a startup, the purchase price of the equity implies a company valuation. For example, if an investor purchases a 10 per cent ownership stake in a company, and pay $1m for that stake, this implies that the company is worth $10m.

Some early stage investors may wish to avoid placing a value on the company in this way, because this in turn will affect the terms under which later-stage investors will invest in the company.

Convertible notes are structured as loans at the time the investment is made. The outstanding balance of the loan is automatically converted to equity when a later equity investor appears, under terms that are governed by the terms set by the later-stage equity investor. An equity investor is someone who purchases equity in a company.

Example
Suppose an angel investor invests $100,000 using a convertible note. Later, an equity investor invests $1m and receives 10% of the company's shares. In the simplest possible case, the initial angel investor's convertible note would convert to 1/10th of the equity investor's claim. Depending on the exact structure of the convertible note, however, the angel investor may also receive extra shares to compensate them for the additional risk associated with being an earlier investor.

Apply the same principles to Real Estate Transaction:

I agree with avoiding unnecessary risk especially with IRA funds. That's why my personal choice is not to own any property in it, which can put ALL my IRA assets at risk because of the inherent liabilities of owning property. Also, there are tax considerations UBIT, No depreciation expensing to offset taxable income. Not to mention, you have to be very careful with liquidity issues for operating capital, because any cash needed to fix a problem associated with a property owned by your IRA (repairs, legal, etc) has to come from your IRA funds.

The word "derivative" is a scary word because most people think of the financial meltdown we just went through. I wasn't referring to the "voodoo" financial instruments, what I was referring to was learning how to create your own notes or options on deals you understand. If you have the education & creativity, you can accomplish the same and many times, superior results of owning real estate, simply by structuring them appropriately to greatly improve liquidity & reduce risk.

Welcome to the site Bruce.

We are practically neighbors. I'm in the Conejo Valley. Hopefully you can attend a local BiggerPockets meetup I am hosting in Westlake Village.

Welcome to BiggerPockets Nick,

It is a great community. I concur with your decision to live in Ventura, I grew up close to that area & love hanging out on Main St. and the beach. Hope you can attend a BiggerPockets meetup in the future. I am hosting one in Ventura County at my office in Westlake Village.

I am really enjoying this post. Opportunity is everywhere.

When we say we want to fix and flip, hold, or do notes. Although, it is important to be focused, is also beneficial not to be too myopic and not pay attention to sometimes bigger and better opportunities that are right under our nose. Isn't it true what we really want are the choices that income and wealth bring regardless of where it comes from? We just need to continually develop our skills so that we can take advantage of those opportunities.

I love the quote from Jim Rohn "Don't wish it were easier, wish you were better".

@Daniel Nase

@Gene Hacker is looking to network with other investors. FIBI is a great place to do that with no sales pitching. Plenty of deals get done because of relationships.

If you are looking to specifically invest with club members & pool money together then no, FIBI is not formally set up for that.

My preference would be to stick to your own backyard & find a niche that will be profitable.

The romance of buying out of state can turn into a nasty break up.

It would not be my first choice.

@ Dennis Lanni

I'm not too sure the worst case scenario is liquidation through probate court. I think there are too many unknowns.

The conservative approach would be to secure a position in the deal for as little as possible upfront with the parties that are cooperative, then pay the balance once everything else is sorted out. No need to assume additional risk if the situation changes, or if obtaining marketable title takes a while or never happens.

I would consider an alternative structure if possible. Especially if one person is strictly a money partner & not involved in the day to day operations.

They could use a shared appreciation note or a recorded option instead of creating a partnership.