All Forum Posts by: Aaron Pfeffer

As good as it gets for wholesale. Nice. Question...

Why did that particular agent approach you specifically? She knew you as a wholesaler or for another reason? Either way, great example of networking right there.

@Wayne Gaudette

Non recourse hard or private money. Every time. So much love on BP for leveraging your own assets to do deals or risk doing them all cash with own money that always confounds me. Lenders everywhere are falling all over themselves to give you insanely high leverage at 8-12% money depending where you live. A flip is a 12 month or less endeavor and all the loans are one year terms and most have no prepay clauses. 10-20% down payment plus giving you most if not all rehab money too. HMLs are not evil, people. They want you to succeed so you become long term clients. Simple SFR flips that need cosmetic rehabs are HML all day long.

@Patrick Menefee way to power through and share the journey. Thanks and good luck!

@Antonio Pican

Keep it clean. Seller finance the value of the lot lot in second position at 8% IO rate deferred until sale of newly built house. 12 - 18 month note. Then take 10-15% of net profit of completed house sale. ROI will look very nice. Just be comfortable with idea that this is their project now, not yours. You have no say in the spec build or sales price any longer.

The profit split ratio you seek is contingent on how much of the "money" you actually are. As in, is your $25,000 covering the down payment for the first lien financing of the flip and also the rehab portion? If that is the case, then you are the "gap lender" and should be getting 30-50% of the net proceeds. Or is your money just being used as the debt service of whatever loan he is getting, so he has skin in the game himself? That could be more like a 10-15% return. Or are you just the rehab money? Maybe 20-25% net profit to you then. Whatever you are, even more than what you're making, you want to secure your lien appropriately. Create a note, record a DOT, get the appropriate title insurance and make sure you are listed as a loss payee on the hazard insurance. And if your money is being used for the rehab portion, then you should be doling it out in draws, most likely as reimbursements for money he personally spent first.

@Eric M. made some great points too. Dreaming of your profit splits is cool and all, but making sure you protect your money at all costs is way cooler. These types of small JV deals can go awry very quickly if you're not careful. 

There are some that do, yes, but both borrower and lender have to adhere to strict rules to do so. At least in the state of California they do. For instance, the loan given absolutely needs to be "for business purposes." The loans are also often done as a form of HELOC. I am not advocating for this type of lending, nor do I have too much info on them (as a long time hard money/private money broker myself I steer clear of anything owner occupied), but yes they certainly exist. And the ones that do exist need to be air tight with their disclosures and collateralization. Because there is no..."well we didn't get the conventional loan for this primary residence we were trying to buy, so let's just pay a hard/private money lender way more in costs and interest rate for a bridge loan just we close on the deal and refinance later." Nope, that loan must be specific to business purpose.

Anyone using this as a lender? Happy, not happy, ways you've created the best yield over the last 3-5 years? Thanks!

Brian -

I like your gumption and candor. A great deal. Do this...

Create a spreadsheet of all sold rehabbed houses in your farm area. Then go on Redfin and look at transaction history of each and every house. Was the house purchased in the last 24 months for 25% or less than what it just sold for? If so, then it was most likely an investor flip. Next, get access to title runs. Run title on the ones that look like flips and specifically pull up transaction history of those title runs. Why? Cause that's where you find the deeds of trust/mortgages/liens which are all public record. Why are you doing this? Cause you will see who gave those flippers their money. And while many of those liens will be from hard money lenders, many will be from those private lenders you are looking for. Many of those private lenders will be entities. Run a state entity search, which will then show you who are the point contacts for those entities. Then you need to figure out how to source their phone numbers/email addresses. Call and email them and explain you want to work with them too. And if those private lenders you found on title are not entities but individuals? Great. One less step. Figure out how to source numbers and emails. Or...often times those deeds of trusts/mortgages/liens have return addresses of the lender on them. Send a very nice letter to those addresses about why you want to work with them too.

Happy hunting.

1.  Take the extra 3% for a 13% rate instead of 3 points up front and they pay you back any time less than 12 months...well you didn't really make 3 points, did you?

2.  Depending on where you live (no idea the usury laws of Canada), but 13% first lien could be considered usurious, so your interest rate needs to be in line with law.

3.  Give someone 100% and charge your points to the back end of the loan and sh*t goes awry, they are a hell of lot likelier to shrug their shoulders and say "oh well, i have nothing in this deal anyway, so, see ya lender...thanks for letting me have zero skin in the game from the get go.  Sorry it didn't work out and I lost your $100K, but it's all good, I'll send you a nice holiday card at the end of the year."

4. Yeah, there are some good terms that are a good idea to increasing your return. They're called profit participation/JV terms, and if you plan to give 100% of the money to your borrower, they should be paying you a healthy percentage of the profits because at that point you are their partner, not a lender.

A couple more things...

- Make sure you are in compliance with state law (is this New York?) with regards to interest rate you are charging and if that rate requires the use of a broker.  For instance, an interest only loan 10% or more in California should be done through a broker to avoid running afoul of state law and DRE compliance.

- Make sure you are getting a good Lender Title Insurance to secure your lien.  125% ALTA policies with no Western Regional Exceptions (also known as 2006 Extended Policy Coverage) are great for private bennies in California, and that may also be true of New York.  Check with attorney who is handling the closing of the file.

- Make sure you are listed as Loss Payee on the home insurance, and that you want a 12 month policy in place at time of closing, even if your loan term is longer than that.

- Make sure you get all LLC documents (Articles of Org and Operating Agmt), and that the signatory on all loan docs (Note, DOT, Disclosures) matches the authorized signatory of the LLC perfectly.

Good luck!