All Forum Posts by: Ellis San Jose

1. Talk to sellers

Jeff is right. Originating owner occupied loans carries a different set of risks, with tremendous liability to the lender.

Possible solutions:

1) Connect with a mortgage broker who knows companies that may originate this type of loan.

2) Have the seller originate carry back financing (they have a special exemption) they can sell the loan to a note investor down the road if they need liquidity.

Good Luck

Great discussion,

I learn so much from the comments here from skilled and experienced note investors.

I agree that there are a multitude of business models that will work in the note biz. It's really about personal preference, time available, skill set and resources.

The spectrum is huge, from creating notes, buying performing notes, non-performing with equity, non-performing no or low equity. Cherry picking private or individual notes, buying pools. 1st, 2nd, 3rd, tax liens etc.

My rule of thumb is the less equity you have, the more skills you need to extract profit. More specifically, need to have the skills and traits of a collector ( or have them available ) My preference is to have more equity because I don't want to have to care too much or work too hard if they don't pay. "The happy happy" note definition from Jimmy Napier has been my mantra for the last 12 years , " I'm happy if they pay and I'm happy if they don't".

Choosing a Low, no or negative equity strategy, you will need to spread risk with a portfolio model. I can say from personal experience that Dave Van Horne and PPR provide great training and are an excellent resource to learn what I call the "collection "model.

Buying individual notes, one offs or cherry picking direct from banks is not a good use of time and unrealistic for the most part. To get access you will be buying from other middle men with access to the inventory. That space is pretty competitive but inventory is easy to access and plentiful.

Buying or creating private notes takes a different skill set in locating opportunities direct from note holders. There are also brokers who can help source deal flow. It helps to be extremely specific for what you are looking for in either case.

It is critical that you make an honest and unbiased personal assessment before you choose the strategy and business model. When they are in alignment it is bliss, when they aren't is extremely painful.

Using HML's are about speed, make sure you build a good relationship with your Lenders you can work out any extensions if needed.

Feeding the high interest rates with rentals are difficult to sustain. We are fortunate in my area to have a HML who has a program designed for holding rentals for 8yrs @ 9% which can work for some deals,

Don't wait to accumulate your hold portfolio just because you can't qualify for bank financing currently. I would consider paying all cash the worst of your all your options for a hold property especially if you are just starting.

Find the deal and put it the appropriate pile.

Pile #1-Wholesale: Never take title so you don't need a loan

Pile #2-Fix & flip: HML, JV, Private Money, Sub-2

Pile #3-Buy & Hold: Seller Carry, JV, Private Money 9% or better, Sub-2, Master Lease, Lease Option, Buy & Wrap, Bank Financing.

It's a good thing it isn't under rent control.

Is she month to month or on a lease?

If she is month to month give her a notice of a rent increase. If it's 10% raise or less 30 day notice is required If it's more than 10% raise it requires a 60 day notice. San Mateo Ordinance

You can escalate the rent slowly or very quickly. Obviously you won't win any popularity contests with her when you increase the rent but you do have the legal right to do so.

Underlying questions I have are in getting my journey started are...

1) if I were to find a property from a motivated seller (and I have the cash to buy the property at that point in time), what type of contract would I have the seller sign? Where would I get this contract (for properties in TX)?

It depends on what you are trying to accomplish.

Are you planning to wholesale the property, fix & flip, buy & hold?

You could:

2) Once the contract is signed, do I work with a RE Agent to get it closed.

If you have a property under contract, RE agents can help you find a buyer and list the property on the MLS, if thats what you mean.

There are other ways to find buyers/investors to close on the property.

If you are asking about the formal "closing" on a property. You can use a Real Estate Attorney who does closings or an Escrow & Title company.

In my opinion, there are at least five huge factors in determining whether or not you should go out of state to invest.

1) Your investment objectives.

2) Amount of capital you have available.

3) Your desire & willingness to be involved, in day to day, hands on investing & management.

4) The time you have available to devote to investing & management.

5) Experience & ability to establish & maintain systems for oversight of your investments.

If it is tough for you to find a good deal within a 2 or 3 hr. radius, it may not necessarily be geography that's problem, it may be the deal finding strategy that needs some fine tuning. It's not easy & yes it really does take a lot more expertise & education in a competitive environment. But I know it can be done.

The standard advice given is to call brokers, network with other investors, and look for listed property online (yes like Loopnet, & the MLS etc.) & hope to be the highest bidder. Yes, I suppose it works to some degree but there are

Two of my favorite quotes-

" Good deals are made not found"- Peter Fortunato

"In the absence of capital, focus on your skill, creativity, resourcefulness & hard work... you will find it has infinitely more value "

@Joshua Dorkin you did the admirable high road by not engaging with this persons negativity.

In my opinion, there are definite distinctions between the terms Flipping, Repositioning, & Building Equity.

Flipping is about finding & controlling (not necessarily owning) a mispriced or undervalued with the intention of selling it quickly.

Building equity is more about reaping the benefit from appreciation & amortization of time.

Repositioning is about improving property value by:

1) Shifting to a higher utility

ex. raising the income in a "C" class apartment building to a "B" apartment building by adding amenities & improvements to attract renters willing to pay more)

2) Changing use

ex. taking a single tenant commercial or industrial building & changing the use to multi-tenant retail or condominium lofts.

3 pieces of advise given to me by my mentors who are very seasoned investors.

1) Keep things very simple & above board in IRA & other Retirement Accounts (401k's, SEP etc). Anything that crosses the IRS & ERISA rules can hurt you very badly & may cost you a lot of time & money to defend, even if you are right.

2) Hold Options, Notes, & Contracts not property

3) Document your deals properly so that they can be understood if they are ever scrutinized.

If you are keeping the existing financing in place, then I imagine it is asking for the current loan terms (balance, monthly payment, e# of payments left, any arrears etc.)

If you are getting a new loan or paying off the loan then it won't apply.

Equity is probably an estimate of gross equity. Current value minus all existing liens. I am assuming perhaps that it could be an equity purchase contract vs. a standard purchase contract.

Good luck.

Keep reading for my official bullet proof legal disclosure:

I am not an attorney nor am I providing any financial, legal or tax advice. I am just a guy on a computer posting rambling thoughts on a real estate website. Anyone would be foolish if to act on anything posted here without first getting proper legal & financial advice cuz I don't know your particular situation. Only Attorneys, Financial Advisors & CPA's can give you the right information and advice as it pertains to you. So don't be too cheap & foolish, pay them their fees when needed. You'll feel better & they will too.