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Just as Jackie just got finished telling Lois a new member don’t give up on a deal if you don;t know what to do with it ask.
Here is a case in point of just last week. Looked at a house people wanted to sell (vacant house that got sent a postcard). I would not give them the price they wanted. I was not even thrilled on the deal, It is a total inside gut and replace everything. It is a big project and I have a big one going on now. Bottom line their end value after fix up was about 20 K different than mine. Told them I would check back after my big project was near completion. I said good look selling. They said if I was not buying they were going to borrow the money and fix it themselves Ha ha any opportunity. I told them I would lend them the money 50K 10 Points 15% interest all due in 6 months with the right to extend an additional 6 months for 1K. Installment disbursements 10K at a time. Points rolled in. We will close next week on the deal. Don’t give up there are allot of profit centers out there.
Don WedeThanks for sharing this Don. This is a great example of how to make money on a house you don’t buy.
People might ask, what if they don’t make payments or pay you back? Then you get the house! So, the loan could be a back door in to getting the house anyway. Hopefully that does not happen, but you are protected with a note and deed of trust or mortgage which give the lender the power to foreclosure if payments are not made.
I love this idea. What paperwork or verbiage would you need to use in order to have the power to foreclose should they default? Would there be an issue if you foreclose and there’s already an underlying mortgage against the property? If there is an underlying mortgage would you have the option to “sub-to” after foreclosure and keep making payments on that pre-existing loan or what would the best/different exit strategies be at that point?
For your answers please assume the property is 100K as-is condition/200k ARV & there’s 10% equity, 50% equity, and -10%equity. There’s also 10k, 40k, and 70k in repairs needed. Essentially we need six answers (10k repairs w/10% equity, 10k repairs w/50%equity, 10k repairs w/-10% equity and then 40k repairs 10% equity, 40k repairs 50% equity……..so on and so forth.
Rafael,
A Deed of Trust or Mortgage is recorded by the title company or attorney who closes the deal. This document secures the note and spells out how a lender (you) can foreclose if the payments are not made. The rules are different in every state.
To avoid a foreclosure process, it is usually quicker and easier to offer cash for keys.. which means you tell the borrower, I’ll give you $1000 to sign the deed back over to me even though you have not made a payment to me in 2 months.
If it does go to foreclosure, the property is sold to the highest bidder. So, if the mortgage was $100,000 but the bidding went to $120,000. You’d get paid $120,000. If there is an underlying loan, it would be paid off first, then you’d get the rest. So, essentially, you could make even more than you would if the borrower paid off the note. But if the highest bid was only $80,000, you should be at the auction to bid it up to $81,000 so you get the house back.
No examples are needed. And certainly not 6!.
The borrower does not pay, you can foreclosure OR offer them cash for keys.
Thank you Jackie that was certainly helpful knowing it’s always better to avoid foreclosure and what secures your right to foreclose. What I was getting at when asking for examples was deal structuring. So if I’m following you correctly it doesn’t matter if the house has negative equity, low equity, or high equity you would always make the loan? How would you calculate the maximum loan amount you’re willing to make?
Every lender had different criteria. As a private lender, you usually require about 50% equity minimum.
Keep in mind that most banks or mortgage companies will not lend on a house that needs a lot of repairs. So, the borrower is forced to use private or hard money lenders which charge much higher rates plus points.
it is better to never lend on a property you would not want to own.. because you might get it back. That’s why Don was willing to lend on this property. If he gets it back, that’s ok.
Rafael.
In the above case I did not personally lend the money but facilitated the deal. I have a financial friend that wanted to put 50K to work. Outlined the deal to him. He has done deals like this in the past but not recently. I told him I would put the deal together all he had to do was have a secretary do is write the checks. He liked that. We have done four deals over the last year, different kinds of deals but deals. All on SFH. He trusts my judgement implicitly.
We have been in deals together for three years. Actually I have keep him out of a number of deals he wanted to do and I advised against. In this deal he got the interest and I got the points. Never done a deal like this but it was real simple.
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