All Forum Posts by: Chris Martin

At the end of the day, you are pledging an asset (stocks, in your example) for potential liquidity. Disclaimer: my stock 'portfolio' is small relative to NW. 

After the GR (Great Recession) we did these types of loans through a pool (group of properties in a tranche) on lower-cost, lower-rent property. See this BP post, for example.  Simple collateral substitution. 

Would I be doing business today like on 12/21/2012? #e!! no. There is a time and place for every strategy. When factoring in risk, I agree with @V.G Jason

Quote from @Justin Skiles:

Hi Folks! 

I am considering a partnership with a young construction worker I trust.  He would take out the loan on a multi-family and I would provide the funds for closing and reno as he lives there for 2 years.  Has anyone done this type of arrangement before?  Outside of the normal partnership risks, what other risks am I overlooking?  I was thinking this could be a good strategy to scale and keep costs managable.  Thanks in advance for any and all advice!

-Justin

You may want to talk to a Mortgage Loan Officer (MLO) to make sure a "partnership", a legal entity, is acceptable on an FHA Multi-Family loan. I deduced this type of loan from the "3.5% down" comment. My guess is that the arrangement you contemplate would not meet FHA underwriting guidelines, but I am not a MLO and have not had a conventional or FHA loan in decades. I just know that most federally subsidized loan programs lend to people (humans), not partnerships, LLCs, or corporations. 

Quote from @Brian Kehoe:

In the current market with the prices of homes being so high does it still make sense to be investing in real estate or to be accumulating cash and waiting to see where the market goes? I’ve been reading articles stating how baby boomers are starting to retire and selling their businesses at a discount. I’ve been researching businesses for sale and many look profitable on paper. My question is in the current market would buying a high cash flow business where I can be an absentee owner be a better decision then investing in real estate now? My thought process is make the cash now and invest in real estate later but I’d love to hear anybody else’s insight. 

If you have the ability to manage managers, then for the next decade you will have the opportunity to buy out retiring Boomers in whatever industry you like. Maybe 6-8 months ago, I would have answered like Don, but I spent a day with an investor in one of my solar farm projects and I was absolutely floored. 

He has been buying businesses owned by aging Boomers, and the TAM (Total Available Market) for him is huge. Think about it. "10K a day" of Boomers retire, and many of the "S" type business owners really didn't develop a plan for how to exit their business. Lately he has bought local restaurant businesses, primarily, but also apartment buildings, land, MHPs, and other commercial properties. 

So, I'd encourage you to pursue business acquisition if you have the skills to manage managers. The best example I can think of is this. I met a guy in the 1990s who owned a Jersey Mike's franchise. He was an "owner occupied" franchise in that he was owner/manager/worker. I went there several times weekly. But he wasn't there after a few months. Maybe two years later, we (my W-2 working colleagues in the 1990s) saw him. He recognized us and we talked for an hour. He had 6 or 8 stores. He rotated between them, managing the managers. He wasn't buying out people, but rather expanding the franchise opportunities. 

Fast forward to now, and there is an incredible opportunity to buy out old folks like me. Aging Boomers have developed fantastic businesses, but they are old. Health, focus, will, and determination, along with a lot of other factors, will make Boomers want to exit. They need a buyer. Many times there is no one there. And the more motivated the seller is, the more willing the seller will negotiate terms and price. 

So, my answer is, to your conclusion "My thought process is make the cash now and invest in real estate later..." I agree, if you can manage the manager. 

As you are probably aware FHA rules state "FHA’s single family programs are limited to owner-occupied principal residences only." Further,

"At least one borrower must occupy the property and sign the security instrument and the mortgage note in order for the property to be considered owner-occupied.

"FHA security instruments require a borrower to establish bona fide occupancy in a home as the borrower’s principal residence within 60 days of signing the security instrument, with continued occupancy for at least one year."

But 15% down, plus reserves, I think, is in the current Eligibility Matrix. I haven't done a conventional loan for decades, so someone else can chime in. The FNMA Selling Guide has other underwriting details. 

I see. The OP had the word "project" and the response had the word "product". There are a billion (exaggeration) companies out there "connecting borrowers to lenders" and no doubt, you've discovered something new. And no. No need to understand the overall multi-trillion-dollar mortgage market since you've got it figured out. Got it. 

I guess I'll ask the obvious. Have your read (and understand) the Fannie Mae Loan Origination Process? There's about 750 pages of detail that cover the majority of residential loans made in the US. Lots of answers in there....

Meant to be a constructive post, not critical. BTW - I'm not currently buying in this market.

Regarding "After several years of studying and trying different methods, I’ve cracked the code." The code for what? Or for whom? I can think of buyer-type: flipper, owner-occupied, STR, Buy-and-Hold LTR, rehabber, wholesaler. Most buyers, but not all, are looking for discounts to "market value." Some buyers (think Cary NC in the 1990s) are looking for attributes not related to economic value, like: common areas, access to public transportation, proximity to parks, etc.

So, I'll ask the obvious: what is your definition of ‘Demand Ratio’? And demand for what? 

I can disclose my 'algorithm'. I use property data sets in doing analysis in Wake County NC. From the 434,294 property records of my last (kinda old) snapshot, using a variety of property-centric heuristics I can generally find what I want to target, defining my TAM (Total Available Market) for my type of investing*. My TAM was roughly 3% of the 434,294 "market" and of that, my target market was property tagged with Substitute Trustee (S-TR) filings, bank REOs, or HUD resales. So << 1% of TAM any given year. And, yes, I get "targets" IDed by computer programs I wrote.

You should just identify your methods. More power to you if you have some "code" 100s or 1,000s of REI (a bunch of them are here in BP Nation) with software engineering degrees haven't figured out. I figured it out in my market decades ago. I know it is in my small geographic area. But I like my little box. I'm not a biggie, having only bought about 80 properties. But I'll stay in my box.

Notes: * - My investing: generational (long-term 20+yr) rental holds, "starter home", 1978+, SI (Stability Index) > 90, CI (Confidence Index) > 90

See also Does my silent partners needs to be in my LLC. Until you have experience in partnering with others on successful projects, I highly recommend working with your partner and an attorney to structure an appropriate, legal, and viable operating agreement, be it in context of an LLC or otherwise.

Good luck to you. 

BTW, I have created several MMLLCs, some with people I initially never met face to face, and at the core are general terms and, legally, the Operating Agreement. I am in NC and LLCs for partnerships in my state are necessary and sufficient. I use them for everything related to business ventures, past and future. An attorney drafted OA is mandatory. 

Quote from @Account Closed:

Hi all,

I recently posted about this topic and unfortunately did not receive any responses.

I have recently established my land acquisition business with the goal to purchase parcels of land, either within data center opportunity zones or areas with the potential to allow for data center development, rezone the property with submitted plans, then sell to developers ‘shovel-ready’ within the various jurisdictions of the Commonwealth of Virginia.

I understand there are multiple mechanisms that come into play including obtaining financing (partnering with an experienced investor), utilizing land-use attorneys, land surveying and engineering firms, appraisers, as well as approval from local planning commissions, board of supervisors, etc.

Would there be any investors who are currently active in this niche?

I would really appreciate advice and feedback on this matter.

It's a great theory, and sometimes it works out. As others posted, the equity 'partners' and entitlement process are tough hurdles. I have designed, built, and own (very) small scale (500kW) solar farms and in my world, I learned to always look for the word 'exemption' to make sure I'm not wandering in territory that will cripple me financially. NC DENR and VA DEQ have great intentions, and I support their efforts in general, but I can't afford $150,000 for all the environmental surveys and sediment studies for the small acre land disturbance area that I build. For developing a 'shovel-ready' project, expect to front mid 6 to low 7 figures and possibly many years in entitlement-related environmental surveys, also called Ehell. 

For data center development, if I were you, I'd focus on working with county economic development offices. Tell them what you're looking for and try to minimize your capital outlay. The 'shovel-ready' value add will be a compelling feature but could cost a lot. Keep your pitch deck to the 10-20-30 rule.

Data center development companies, in general, will build their own energy infrastructure with transmission (not distribution) infrastructure. I own land parcels that surround or are adjacent to substations, since I only care about distribution side interconnects. I'm not building a substation like the data center development guys. I am a small player, but I can complete projects in months, not years. Your site selection will include PJM so you should pitch to their transmission decision makers. I'd avoid EMCs and focus on Dominion and Appalachian Power. Dominion will know what you are planning to do, ApCo, not as much. 

It's a tough game, but somebody has to play. 

Quote from @Jacqueline Lee:

Along my journey to understand how to acquire my first property, I have encountered people that swear it’s possible to use other people’s money (for down payment, closing cost, rehabs etc) but on the other hand I have investors of 20,30,40+ years who think I am absolutely nuts for even thinking it’s real & make it very clear that I am an idiot for ever believing such a thing and will 100% need to come up with my own funds. So I am confused. Is there anyone who can prove or disprove this with their own experience? I have no idea who to follow guidance from and don’t want to get burned. 

OPM is absolutely real. As posted above, though, OPM may not be practical for a novice investor. Michael Lechter literally wrote the book, OPM, in 2005. It is still relevant but doesn't have some newer finance options like DSCR loans that largely did not exist outside of commercial banks until after the GR (Great Recession.)

As pointed out, we in BP Nation don't know your financial means or your skills. OPR (Other People's Resources) may be applicable, but without knowing you, I can't tell. Given your presumed lack of real estate experience, OPM (other than 'traditional' bank financing) is likely off the table for now. 

PM me so I can get your address and I'll send you a copy of the book. 

For acquiring your first property, I suggest using a bank. Learn about Form 1003 and if you are really motivated, learn the Fannie Mae underwriting requirements, specifically Part B.