All Forum Posts by: Aaron Pfeffer

@Kyle Steiner

I own three SFR rentals in Lancaster and have worked with other local flippers for private funding. If you would like to hear my thoughts pls DM me your number and we can discuss.

Tax implications not withstanding and assuming you do not put them in the LLC (unless they are an operator with you and want to absolutely share in your liability, which is JV partnership and not a Private Lending scenario)...

1. Record the DOT that secures the Promissory Note with the county

2. Get them 125% Title Insurance with appropriate Endorsements to further secure their loan. Get CPL prior to closing

3. Further make sure that exceptions you (they) allow to remain on the Preliminary Title report do not interfere with their lien, especially any defaulted taxes that may come with the purchase of the property

4. List them as Loss Payee on Hazard Insurance, and get correct insurance specific to a flip (for at least 12 months)

5. Use a reputable third party servicing company to make your payments to, so that they can generate necessary end of year tax documents for both yourself and your Private Lender

That's a tall order for the Private/Hard Money space @Jason Turo.  The Mortgage Office is good for loan servicing if you are not outsourcing, but also very expensive to set up.  I'd be curious to hear if anyone else has any answers that would essentially act as Rocket Mortgage for our space, but your most likely going to have to build something out yourself or utilize a few different software packages like Calyx Point, DocMagic, et al.

So, from an objective perspective, this thread seems to have gotten off track.  Maybe we can all take a step back and put some perspective on what Lucas is proposing...

For starters, he isn't "flipping" these properties himself, so he's not actually doing out of state property flips.  He is apparently lending his money in a Gap Financing position to this woman (or her associates) from the sound of it.  So we're assuming she's going to lever up as much as she can with a first position loan and then utilizing Lucas' $30K to gap the down payment and/or repairs.  Does that sound about right @Lucas Mills?

If that is the case, then okay, she is offering you what appears to be solid 'pref' and a taste of the profits, which is standard for a passive gap lender. It's also not unusual for flippers doing deals in volume to use Gap Lenders and giving those lenders sizable returns for their risky investment. These types of JV structures happen between flippers and lenders all the time...but it's important to know that is exactly what we're talking about here, because if it's anything else, then yes, it would raise many concerns.

And even if this IS what we are talking about, then you're going to want to feel extremely comfortable with her as a flipper, and more specifically, as your partner., because that's really what she is here.  This is a Joint Venture of sorts, which makes you partners, especially since you are participating in the profit.

Strongly suggest you take that four hour drive, meet her in person, meet the entire team, see her previous flips (numbers on those flips) she has completed, and know exactly what you are getting yourself into.  AND make sure you collateralize your money appropriately if you ultimately decide to move forward with her.

Best of luck!

First, @Jane Gibbons that is very interesting to hear, so thank you for sharing.  They do in fact (or until recently) tout how all of their Trust Deeds are performing, so it's very eye opening to learn this may not be the case.  Secondly, I wanted to chime in because it seems there is a misconception about this company on this thread with regards to how they operate.  PatchofLand and RealtyShares are crowdfunding ORIGINATORS for real estate developers, where PeerStreet is a marketplace for accredited investors to purchase secondary hard money deeds.  In other words, they are the Secondary Market, or Fannie/Freddie of the hard money and private money world.  So if a hard money lender or private beneficiary wants to sell their Trust Deed, they can do so on PeerStreet, and PeerStreet offers a platform where many investors can purchase parts (or all) of the note that is being sold.  That is very different from actually originating the money for the investment in the first place.  I know that sometimes PeerStreet buys a portion of these Trust Deeds being sold themselves, and sometimes they just act as the brokerage making the offering, and they take their fee by reducing the value of the note to the end investor, keeping the spread for themselves.  @Julia W., thank you for your post, as the Blog Review link does specify that PeerStreet does not originate.  But the blog calls this a blemish, as if they are in competition with the above mentioned P2P companies. I have zero affiliation with PeerStreer, nor have I purchased any of their investments.  I just wanted to help make clear the distinction between sites that originate via crowdfunding and a site like PeerStreet which is a marketplace to purchase already financed investments.  Very different.

Try Orchard Funding, they are local to Denver.  Good luck!

Curious, when you say the Brokers are offering high LTV for the 10%, what do you consider high for that return these days? Also, are you looking at only First TD or possible Second TD? With regards to advertising legally considering you hold a license, check directly with CalBRE about that to ensure you are in compliance.

Love the  gist of the plan, but now the big hurdle will be who actually does the legwork?  Will you pay a premium and farm out to a Direct Mailing house?  Will you hire local letter writers/stuffers/delivery or will you be doing that yourself week in and week out?  Will you put your supplies on "auto" from Amazon or will you always remember to order envelopes, stamps, paper, etc week in and week out?  It's nice to write "run the campaign" down on a list, but actually doing it week in and week out without lagging takes focus.  You seem ready and organized and smart to look for a 50/50 partner to split the costs...just remember that the real plan is in the minutia.  Good luck!

Doesn't seem like an FHA Flip rule issue since you've owned it over 90 days already...

But yes @Billie Miller, you are certainly not the only investor who has ever run up against an FHA underwriter being tough on the end seller. So far you've taken some good steps in proving your case, though it may ultimately still fall on deaf ears, because that is the nature (or insanity if you prefer) of the lending landscape these days. You've helped the underwriter, and now it's time to help yourself. Meaning, prepare for this not to go through with this FHA buyer at $210,000 and figure out a backup situation just in case. Were there backup offers? If so, have them get ready to fill in if the current buyers drag this situation out too long. And if no current backup buyer or you've taken this property off the market already because you think you've wrapped us this sale already, you may want to put it back on the market and get backups ready just in case. Maybe 20% down buyer next, even if the sales price takes a small hit. Being at the complete mercy of any lender or institution like the FHA is no place for the investor team to be.

Avoid creating LLCs where there is a 50/50 ownership whenever possible, because that's when things get messy.  Unless you clearly own more than 50% of the entity AND are the decision maker (Managing Member etc.) then I would use a different vehicle to get into business with a money partner you don't know well.  Some sort of Limited Partnership agreement (seek a local professional to help) or structure it as a Trust Deed investment so the partner has a lien against the subject property (and hopefully not you personally) for each deal you do.  Good luck!