All Forum Posts by: Zach Bollman

Thank you all for the great information. Now that I have an idea of what I should be looking at, I’ll reach out to the banks.

Hello all,

Currently looking at multifamily properties to dive into real estate. Properties range from 8-16 unit. I’m curious as to what other BP members have found regarding financing. My general understanding is I’m essentially looking at 30% and around 2% over residential mortgage rates. Is this accurate?

Also, does anyone have any suggestions for who to reach out to for a quote on multifamily financing? Thanks!

Best,

Zach

Any correspondence between you and the borrower opens you up to liability. Unless you're well-versed in the law governing correspondence between debtor and creditor, I strongly advise against initiating communication yourself.

As an example, if you send an email that lacks a disclaimer or in any manner violates, or might violate the law, you will be liable for that correspondence. Conversely, if your servicer sends the "illegal" email (promising your servicer is liable for their own errors), then your servicer is liable for anything that comes of it. Overall, you're opening yourself up to a lot of liability for little return (return = savings from doing it yourself). 

@Marshall Easlick I believe the “commercial” part can be a bit misleading as my reference is not to notes backed by commercial properties, but notes backed by non-owner-occupied propetties (investment properties). However, if you’re looking at notes backed by commercial properties, then I imagine you would need quite a bit more capital as those properties are going to be significantly more expensive than a single-family home or duplex. 

@Marshall Easlick Take my thoughts with skepticism as I haven’t jumped into the note game. However, my understanding is that the notes require the same capital — you’re just limiting the notes to investor-owned rather than owner-occupied. So, if you’re buying a note for $80,000 secured by a property valued at $120,000, the only difference is whether it’s investor-owned or owner-occupied. This is my understanding. However, certain characteristics of investment properties and the original loans may cause a divergence in cost between a commercial notes and regular owner-occupied notes. 

@Marshall Easlick I'll take a crack, but @Jay Hinrichs will certainly be able to better explain what he meant. My understanding is that dual form of payment relates to holding notes for non-owner-occupied properties ("commercial notes") -- you are the creditor to a real estate investor who is the debtor. As a result, you have payment from the debtor and potentially payment from the tenant if you need to foreclose on the note and repossess the property. An added benefit of commercial notes over owner-occupied notes is that you will continue to have positive cash flow as a note holder despite a vacancy because the debtor is the landlord who will ideally continue to make payments required by the note.

@Jay Hinrichs and @Odie Ayaga: Thank you again for the great information.

@Odie Ayaga Thank you for the comment. I'm certainly interested in lending for the same reason I'm interested in notes -- I used to work for a lender and now represent borrowers and lenders in commercial transactions. 

By lending, I assume you're referring to hard money lending? I haven't fully browsed the forums to see if there is a hard money lending subforum, but please let me know if there is a BP group that focuses on hard money lending or where to find opportunities more generally. Thanks again!

@Angela Russo I'm guessing that it is going to be extremely difficult to locate a chart identifying states that allow fractionalization without securities law and brokerages coming into play. That sort of information is going to be internally controlled by a law firm with a practice focusing on notes. Given the size of the market for fractionalizing notes of the kind BP members are interested in, you're looking at smaller law firms which likely won't have conducted any sort of 50-state survey. At large law firms, 50-state surveys are saved for the summer associates and cover a myriad of areas, but 50-state surveys become less and less common the smaller the firm gets as the firm will focus on more niche practice areas and geography.

Regarding a borrower refinancing or selling the property: I cannot speak to the normal practice that @Marco Bario may be able to address, but this situation should be clearly addressed in the agreement between the original note holder and the party taking the partial interest (whether through assignment, fractionalization, or whatever method is used). My guess is that the party taking the partial interest would be paid out the amount owed under the agreement with the original note holder retaining the rest. For example, if I purchase 24 months of $500/month payments, my guess is that industry standard is to agree that the party acquiring the partial interest would take a lump sum payment of $12,000 minus the amount already paid when the note is refinanced or the property sold -- essentially an acceleration clause of sorts. 

@Chad U. How would you suggest finding partners for a JV? Local meet ups and the like?