All Forum Posts by: Trevor Smith

@Bill Gulley

Thanks for the warning. I will talk to a lawyer sooner than later. 

@Jay Hinrichs
We will never agree. I believe your perspective is why the rich stay rich in this country, and why banks run amok making billions on other peoples' money. Because he who has the most money, makes the most money. Does that sound like a recipe for equal opportunities? 

Thanks @Bill Gulley

Thank you for the words of caution. I am in business with my parents. I wouldn't get far without them, sadly. My parents do have assets and their contingency fund, but nothing to  spend on this deal at this time. We are all tied up in that flip I was whining about. 

Another colleague of mine has a seller-finance business and he does have to follow the Dodd Frank laws--we have talked about it. So we will have to check the buyers' income and make sure it is enough to make the payments. The wonderful thing is that their payment is exactly what the rent would be for this house. I felt bad asking 10 or 11% but it is in line with rent so I think that is wonderful. They are paying rent and owning it. It's great for everyone. 

I would not call it a subject-to deal because they will be paying more than I am for the house. I will not simply be selling my note of 105k to them. They will be paying 160k for the house. I will have to hire an attorney to help me do the wrap-around mortgage docs. 

As of right now, my general contractor is going to help me with funding. I am very relieved. I hope that he will lend me the money instead of requiring partnering with me. His money is doing absolutely nothing right now, so 8% interest only on 120k should sound very good. That is an extra $800 a month for doing nothing. I will do everything. But as you guys pointed out, he knows me. That makes all the difference I guess. 

The flip I am breaking even on is a different deal. And for all I know, we could still make 20-30k on it. It really depends on what it sells for and I just can't say what's going to happen. And you're right, it was probably an 80% ARV deal, not a 70% ARV deal.

But I understand what you're saying about credibility. Every business requires paying your dues. In my opinion, the lender doesn't deserve an extra 8% off the top because I did put money in the deal--I paid for all the marketing it took to find this deal. I'm the one busting my hump. In my opinion, the lender should be thanking ME for bringing this awesome deal on a silver platter to his doorstep. He has the privilege of investing in it and making a lot of money with his money, whilst doing nothing. 

Meanwhile, there is no risk. The promissory note would say that we personally guarantee the loan. My parents have half a million in net assets, good income, and contingency fund. Not to mention, the numbers of the deal don't lie. It is right in front of you. So no risk, no effort whatsoever, needing not even any knowledge of how a wrap mortgage works, and I have to pay HIM for the privilege of doing this deal? Honestly, I scarcely believe in splitting it 50/50! 

Sorry, I got fired up there. But seriously, I totally respect and understand your point of view and I am enjoying this conversation. 

But the hard money is moot anyway because hard money loans require down payment which we don't have. 

@Rick Pozos

I see what you mean. It depends on how you look at it, whether the money partner deserves 8% off the top like that. In my opinion, he doesn't. I was typing a long explanation but then I deleted it because we would get into politics and let's just not do that! 

I retract my statement about doing no deal instead of using hard money. It comes from a painful spot that I am going through right now on my first flip. I am very nervous about breaking even on the deal, and the hard money loan cost me a lot of money. It really left a sour taste in my mouth. 

@Andrew Herrig

You're right about finding a partner Andrew. 

I did a quick calculation for a hard money loan. 120k at 12% is $1,200 a month which is interest only. The payment that the buyer will be paying me is 160k at 10% which is not interest only, it's 30 years. That's about $1,400. So that is only $200 cash flow a month which is $4,800 after two years. But all of the equity is mine so when I am paid off for the full amount, I could make 40k. $44,800 total. But hard money loans still require a down payment. Do they loan LTV based on purchase price or on ARV? How much would I have to put down? But I could potentially pay this down early, such as with the end buyers down payment--making my hard money debt service less.

On the other hand, with a partner putting up all the money, half of the $1400 payment would be mine. That is $700 for two years which is $16, 800. But now I half to spit the equity so I only get 20k. For a total of $36,800. 

Does that sound right? 

Thanks everyone! @Leland Barrow @Andrew Herrig @Melody Bynum

Okay, I am willing to concede. At this point, I will stop asking for what I want, and start asking, what SHOULD I do? 

I'm guessing you're going to say I should find a money partner, instead of a lender. The partner and I could split the profits and they can have 1st lien, etc. 

Thank you for all advice is welcome! 

@Tom Cooper thank you for your input. 

Maybe I'm not describing this well enough. I'm in business with my parents who make a significant income, have a significant contingency fund, and have several rentals. We will personally guarantee the payment of this loan with a promissory note. 
This is my first good deal that I am doing myself.  But I've been learning with my folks for a few years while they have acquired several cash flow rentals. I am no expert, but I know a deal when I find one. 

The deal's numbers should speak for themselves. To that end, I'm more than willing to provide comps, offer the address to drive by, and all of my calculations. This seller-financing strategy is very strong. I will benefit from cash flow between the loans and the equity at pay off. Meanwhile, I need make no repairs, pay no taxes, find no tenants, have no vacancy, have no ill-treated property, and the list goes on. 

If 8% doesn't sound good to anyone earning 0% with their money, then I guess I am just out of luck. 

. 

@Andrew Herrig

Thanks Andrew. I am pretty clueless. I thought asking for only 25% would be easier. If someone wants to fund the whole deal, that is perfectly fine. 
But since I am making the purchase, then the 1st lien will be mine, correct? I can't let someone else make the purchase or they will walk off with the equity. 

I apologize for my newbieness. Just doing my best. Very excited about this deal. I'm sure I will look back at my posts a year from now and be embarrassed! 

So here is a different request. If anyone has 120k for purchase and rehab, I will pay 8% for 2-3 years. That is $800 in your pocket every month! The only caveat is that I would like to pay you off in full or partial early when/if I am able. 

We have the right to foreclose on the buyers if they don't pay or disappear. I'm open to all negotiations. Let's talk about it. 

I realize there are laws about asking for money. So please know that I mean only full respect for the laws and I only mean well. I've never posted asking for money so I'm not sure how I should do it. 

I have a house under contract for 105k. Rehab is 15k or less. ARV is 160k. This is in Dallas, good neighborhood.

I plan to find an end buyer which cannot get a loan and seller finance to them. But I need a loan too. So I plan to do a wraparound mortgage. I have a couple bankers that have agreed to work with me if I can do 25% down. 

But I don't have 25% down. I need to borrow it. I'm willing to pay 8%. The loan will be for 2-3 years until the buyers can refi and pay me off, and then I will pay my lender off. I will write you a promissory note and I can even use my car as collateral--I'm willing to negotiate until you feel comfortable. 

Please reach out to me if you think you can help. I can provide more details and comps, etc. Please don't contact me about hard money. I would rather do no deal than pay 4 points and 14%. 

Tyvm!

Trevor

Hi DFW,

I have a house under contract for 105k. ARV is 160k. Rehab is 15k. I plan to do a wrap around mortgage with a buyer that cannot get financing, and seller finance to them. The ironic thing is that I also cannot get financing. My and my parents' cash is tied up, and our debt to income ratio is too high for another loan we've been told. But all of our debt is good debt in cash-flowing rentals. It just takes a more savvy banker to realize that, apparently.

I can find a buyer with the help of someone who has a business doing seller-finance that will pay 10%-11% for two years and then they can refi with their newly-built credit. I will have the cash flow in the difference between their interest payment to me, and my interest on my loan, for those two years PLUS the equity gain when they refi and pay me off. That is the plan anyway. 

Ideally, I can find 20k to put down, and 105k(65% loan to value of ARV) loan to cover the house and rehab. My parents and I all have great credit. Can anyone recommend a bank that will talk to us about this, or know anyone that has 20k to loan to us at no more than 8%?

I'm also told most smaller banks are going to turn me down if I tell them I plan to wrap it because smaller banks like to use the due on sales clause. But big banks aren't going to play ball. So I feel pretty stuck! 

I am not interested in hard money. The other problem is that closing is on August 8th! 

Any help much appreciated!
I don't want to see this first good deal slip through my fingers. 

-Trevor