All Forum Posts by: Travis H.

@Jeff Kehl - I actually read something similar in the textbook I'm reading now as a good strategy for cash strapped developers. They simply called it a form of seller financing or a mortgage purchase agreement with the seller. Good to hear some real world validation that it's an option. It stated in those instances where a seller agrees to seller financing and subordinate to 2nd position for a construction loan they may command a higher price or return due to increased risk.

I love the suggestion Jeff Kehl. Thanks for the comment. 

All very helpful answers. Thank you especially @Karen Margrave. I would fall into the class of experienced builders so I would assume buying the land and holding free and clear would be the path. Sounds like if I either have enough cash myself or am able to raise enough equity partners than the challenge of getting the construction load in 1st position is feasible. 

Let's assume I'm doing a ground up development project and I have a loan for land I'm developing. Assume the exit strategy and end goal is develop the land, build a multi unit apartment complex,  lease up, and sell it for a profit. 

Is the land loan retired by the construction loan? Or does the permanent financing essentially pay off both land and construction loan balance? Or do you carry that land loan until you sell the property and pay off all debt with proceeds of the sale?

Trying to wrap my head around the real estate finance cycle. I'm reading some college textbooks, but sometimes they don't address the finer points.

Thanks for any input you can provide.

Travis

Whoops,... Bob you just asked this. Sorry

Bill Jacobsen ... If you don't have comparable cap rates then how do you know if your 8% cap is a good rate?

Bob Bowling - point taken. I agree looking at gross rents and operating expenses is where I would start in comparisons of alternatives, but looking for a way to quantify the comparisons with a summary measure. I suppose I could simply use IRR and compare the two rates as opposed to comparing PV and guessing the discount rates. IRR doesn't necessarily equate to valuation, but will serve to compare. Also thank you for the GRM suggestion. I will look into this. Dave Bingham... Thank you for the input. Those methods sound feasible. I suppose with the courthouse method you would be guessing at operating expenses, but perhaps it would still serve its purpose.

Bob Bowling ... I don't know where I would get comparable cap rates. I guess that's part of my question. When I try to analyze my local market to determine what returns other investors might be earning, I don't have a lot of data to work with for 1-4 multi family residential. For example I can look at websites that provide data for cap rates but wasn't sure if they applied to the smaller stuff or large apartment complexes. James Wise ... If you use comps, how do you compare the value of two dissimilar properties like single family home versus a 4 unit quad? Ultimately when I do my PV calcs I'm having trouble determining what discount rate to use. I'm reading Frank Gallinaris book on "what every investor needs to know about cash flow". He says the most appropriate rate to use is the rate of return that other investors are earning in your area. How would I know what that rate is?

In commercial r/e property value can be calculated as: Value = net operating income/cap rate Does this valuation apply to 1-4 unit properties? Or is that not considered "commercial"? Granted from what I read institutional analysts or appraisers might start with discounted cash flows to value a property. As you can see the waters are a little muddy. Any clarity you can provide would be great. Thank You Travis

I have a book and done some research on Pre-Forclosures. Is there anything preventing me from doing conventional financing from a bank to purchase this? (i.e. put 20-25% downpayment on a new mortgage).

What are the downsides? I am assuming time and higher cash requirements? Perhaps competition can react to a deal quicker if they can buy cash, avoid red tape with hard money loans, or try something like "subject to" deals or wrap around mortgages, but my concern is that I am not quite ready for those options. The latter seem overly complex for someone trying to purchase his first property. Ultimately my strategy is buy and hold for long term, but I would like to find the best deal possible in order to improve cash flow. The deals I am seeing on MLS are closer to turn-key and won't cash flow well. I am not afraid to hustle. I'm in sales now and sell enterprise software for my day job so I don't think finding the deal will be my problem.

Thanks in advance for any input you can provide.

Travis

It's great mining that information here on BP it is very helpful. Also, I'm sure there may be many "follow these 10 steps  and get rich quick" type books for sale,but I'm looking for more grounded approach that gives me a solid overview on the foreclosure and preforclosure process in terms of R/E investing.

Any recommendations?

Thanks in advance,

Travis