ATTENTION : Buying Houses for T/B - Posted by Jon

Posted by Hank FL on October 16, 2003 at 24:02:52:

If that’s the case, if it’s happened before; there ought to be a thorough discussion about it.

Perhaps under a new thread ?

But then again, letting a sleeping dog lie is sometimes the best bet.

ATTENTION : Buying Houses for T/B - Posted by Jon

Posted by Jon on October 13, 2003 at 21:00:49:

This idea was brought up at our recent investment club and made pretty good sense to me and wanted to see if others are doing this.

Advertise for quality T/B with money. Instead of trying to buy a house first then trying to market that ONE house, get the T/B first tell them to find a house that they want any house or i can find it for them.

Once they find a house i buy it using somebody elses credit and money. It’s an investment for the person who gets the loan in their name and puts down some money. I give them a % return for using their money and credit.

Then at the time i close on the house i collect 5% down since its a QUALITY T/B and they picked the house. Get my 3% commisson for bringing in a buyer. 200 dollar mth cash flow spread. And sell at a 10% mark up in 24 mths. On a 150k house this is 31800 profit.

It was mentioned this works great and the 5% down is not much of a problem neither is getting a refinance in 2 years since this is a house THEY picked out.

How does this sound to you? Is anybody else doing something similar? How do you get a loan in somebody elses name without taking sub to? Can this be done? THANKYOU for any response

Re: ATTENTION : Buying Houses for T/B - Posted by Brent_IL

Posted by Brent_IL on October 14, 2003 at 12:43:51:

I’ve thought of doing something similar, but the problem I had with implementing the idea was that this approach negates everything I know about creative real estate investing.

The money in creative real estate investing comes from making profitable offers to individuals or entities who value divestiture of a property more highly than they do maximizing their proceeds from the sale of the property. When we let folks pick the house they want, we are buying at retail for the equivalent of cash. The payment spread can work out, but the entire project is dependent upon the T/B cashing you out at some future point so your ?investor? can get paid.

I would be in a worse position than the real estate agents because while they are tying to sell people houses near listing price while husbanding their buyers through the financing process, I?d be trying to do the same thing without earning a commission, but my buyers can?t get financing at all.

Few cash investors want to own real estate. They want money. The real estate is just the secured vehicle to get them there. I?d have a very difficult time getting money from the folks at a real estate investment club. They seem to be enamored by hard money rates and hard money LTV?s. I?d suggest looking for Doctors, retirees, and double income professional couples. Since the ROI you?re offering is better than what they can get on their own, they are delighted with less.

I might be hypersensitive to the concept of anticipating the future action of T/B?s, so take this for what it?s worth. In my second attempt at creative real estate investing, I failed because I was so overextended that, although each deal was sound and didn?t depend on appreciation to succeed, a slight pause in the market and rise in interest rates left many R/B?s unable to cash me out as planned. Investors don?t want to hear about your problems, they only remember the promises you?ve made. To pay off cash partners, I had to liquidate other deals earlier than scheduled and sell into a weak market. This snowballed into a fire sale. Everyone was made whole except my family. Sure, as a result I learned how to do it right the third time around, but the intervening years weren?t all that great.

In my mind, the most important aspects in this arrangement are to reduce the possibility of you being sued by partners, and to avoid anything that would lead to regulatory involvement or condemnation. One consideration would be to set up a limited partnership that clarifies the business relationships and have the cash partners buy CD?s at the bank that?s financing the property. The banks will accept a CD in someone else?s name as collateral for a 100% loan if they are partners. Having a bunch of people jointly and severally responsible for the loan payments may help with the loans. The problem with this is that if you?re buying at retail, there isn?t a gigantic spread to work with. By the time you pay for the first loan and the loan for the down stroke, and give a return to the partners, the deal is fragilely balanced, and wouldn?t take much to topple.

Just randomized musings on a rainy day.

Re: ATTENTION : Buying Houses for T/B - Posted by Dimpil

Posted by Dimpil on October 14, 2003 at 04:58:36:

Good gosh. I can think of 5 federal violations off the top of my head if the partner buyer does not do the deal correctly. Which means as investor loan. IF the partner buyer (which is ther term when do this type of loan/deal) answers on the 1003 that they will live in the house and they won’t, that is already FRAUD.

On top of that, suppose the T/B doesn’t pay? How will you protect the partner buyers credit? It’s easy to say, I’ll just get another person in but suppose it’s 2-3 months that another person takes interst and moves in?

Yet another true story in my adventures as a loan officer

I personally know a group of 6 people who have done just the same type of deals. Using partner buyers to get the homes they wanted and doing simo closings. Well after the head guy got the money, paid his partner buyer, paid the broker, paid the associate who brought the home to him, he stilled cleared over 100,000. But guess what? He went into first payment default on about 3 of the homes which triggerd one lender to call the FBI, then it came out, he got seriously behind in the other payments, marketing didn’t work (his homes were 150,000 and up, 10K down payments 2,000-3,000 type), his mortgage obliagations were about 30,000 per month didn’t have many on lease option or rented and those he did have rented or lease, he either took a cut in payments or they were slow to pay. Now he’s being sued by the partner buyers (although that they won’t win as they lied on the loan application) and the Feds have got in on about 5 charges for each home, little over 20 homes. Mail Fraud, Wire Fraud, Bank Fraud, Conspiracy to Commit Fraud, Money Laundering and RICO violations or something like that. All told he’s facing about 60 years in club fed for just a few homes that were not worth the money.

Now does that mean a partner buyer can not work? NO, my point is be truethful, investors can get 100% loans if good credit or 95% loan with good credit, have money ready for payment if the T/B moves out or is late as you owe everything to the partner buyer to protect him/her.

Loan Fraud ? / Club Fed / Oxyconton / Heroin - Posted by Hank FL

Posted by Hank FL on October 14, 2003 at 24:54:08:

No Jon, loan fraud is not what you are talking about necessarily, but what I’m going to bring up might be.

And yes, Oxyconton painkillers & heroin are somehow related to real estate loans. More on that later.

Anyway, I know a guy that kinda does a version of what you are talking about, but I’d really have to think about it to come up with details. It’s bedtime and I’m tired though. I’ll make a note to start a new thread or add to this one later in the week. It’s very interesting.

OK, what I’d like to quickly bring up is what kind of loan will this “partner” in your example obtain ? [I put “partner” in quotes 'cause you don’t want to be in a general partnership with anyone].

So what kind of loan ? An investor loan ? There are so many programs out there, but let’s just say; 20% down and a higher intrest rate on that kind of loan than an owner occupied loan.

But wouldn’t this deal be a heck of much juicier if the loan could be a lower intrest loan with a heck of alot less cash out-of-pocket. An owner/occ. loan is what I’m thinking about.

Ahh, but that’s loan fraud you might say. The person guaranteeing the debt in this case would be misrepresnting the facts to the lender. I’m not a lawyer but that seems like a correct assessment.

But then I’m thinking about a fairly popular technique which is VERY similar.

Let’s say you are talking to a seller with a a little equity. Enough so that there is, let’s say, 15k that you could pay 'em to get the deal done. The sellers don’t want this money in little chunks over time, nor do they want a lump sum in a couple/few years.

So you tell them to refinance and get their money out that way. Sellers go for this all the time.

But wouldn’t this seller be doing essentially the same thing as in the previous example? The fraud example ?

Is illegal recreational heroin abuse the same as illegal painkiller (OxyContin) abuse ?

Don’t anybody answer that last question, just think about it, and then go back to the loan question again.

I repeat, don’t answer that last question. Let’s not upset anyone with non real estate related discussion :wink:

Re: ATTENTION : Buying Houses for T/B - Posted by Doug Pretorius

Posted by Doug Pretorius on October 13, 2003 at 23:22:43:

Just a couple of things:

  1. Most T/Bs never buy. “QUALITY” ones are probably more likely, as are those who pick out the house themselves, but still the percentages are LOW, so you MUST think ahead and assume that you will have to remarket the house to other buyers sometime in the future.
  2. The above being the case, you might consider doing what I’m doing: offer buyers a choice between various houses that I pick, which I am confident I can remarket again and again in good markets and bad ones.

Whether you will get 5% down depends on your particular market and the amount of competition. The easiest way to find out is to run a test ad.

How you set up the financing with a money/credit partner varies widely from place to place. You can do anything from being co-owner, to a property management-style arrangement. How you decide to set it up depends mostly on tax and liability issues, so you should discuss various options with your lawyer and accountant.

The bottomline is: Yes, you can do deals like this. However, generally you won’t get the properties much below market value, so you’re profit isn’t as good, and you have some additional risk from price decline. But if you’re confident in the long-term stability of your market, you can make up for the downside, in volume. Since these deals are an awful lot easier to put together than digging for desperate sellers.

Re: ATTENTION : Buying Houses for T/B - Posted by Doug Pretorius

Posted by Doug Pretorius on October 14, 2003 at 16:59:24:

Brent, I’d suggest that instead of offering returns based on cash-out, this type of deal would be better setup with returns based on cashflow.

For example, your ‘partner’ can finance the deal with their own cash as a 1st mortgage, or can get an investor loan to increase their ROI. You then pay them a certain amount per month for as long as you own the property. In this way your ‘partner’ earns their returns month-to-month, and then gets their original investment back when your buyer refis. If they don’t buy the house out just repeat the process until someone does.

I agree that offering something like this to your fellow investors is going to be a waste of time in most cases, they can do these by themselves and keep all of the profits. Better to go for highly paid professionals who don’t have the time to setup and manage their own deals.

I also agree that the spread makes these deals fragile in a weak market. This can be partly offset by buying small starter homes which can carry themselves as rentals if it becomes necessary.

Re: ATTENTION : Buying Houses for T/B - Posted by Hank FL

Posted by Hank FL on October 14, 2003 at 07:43:21:

Help me out here. I’m a little lost.

If two guys get together in a joint venture where one of them gets an investor loan and then they split benefits of the investment as they see fit, how is this not kosher ?

As for the gang of 6 /FUBAR /FBI deal, could you tell me how that deal was supposed to work had it not gone south ? What was the intent of everyone involved ? What kind of loans ?

100% - 95% investor loans ? I gotta be missing something here.

Coffee, that’s it.

Re: Loan Fraud ? / Club Fed / Oxyconton / Heroin - Posted by jeff

Posted by jeff on October 14, 2003 at 12:22:50:

If the owner refi’s they are the current owners. Do refi apps require you to live in the house for a set amount of time?? (I don’t know and hope this is not a dumb question.

Re: Loan Fraud ? / Club Fed / Oxyconton / Heroin - Posted by Hank FL

Posted by Hank FL on October 14, 2003 at 12:56:03:

If I’m wrong on this I hope a more experienced/knowledgeable person comes along to correct me.

In example #1, the investor is getting a loan from a bank under false pretenses. The bank would never loan this person the money with those terms if they knew he wasn’t going to live there. All the papers signed say he’s going to live there.

In example #2, although the sellers have lived in the home in question, they intend to leave as soon as the ink dries. The papers they sign don’t say this. They are misrepresnting a VERY important fact to the bank.

This is very different from a regular sub2 transaction where the owner signed papers months/years ago when the INTENT was to live there.

Which brings us to the cover of Newsweak and the Oxyconton/Heroin comparison.

Possessing a large amount of heroin for recreational use will get one in heap-big trouble with FL law.

Possessing a large amount of (illegal) Oxyconton for pain management falls under the same category under FL law as far as I know.

But the guy on the cover of Newsweak ain’t going to jail.

And nether will the sellers that lie to the bank in example #2.

Of course I could be all wrong here.

Re: Loan Fraud ? / Club Fed / Oxyconton / Heroin - Posted by Dimpil

Posted by Dimpil on October 14, 2003 at 21:43:52:

Yes the buyers will IF the note default and there is an investigation because the bank has complained.

Trust me, it could really happen.