Love Austin Homes Investing Blog

Hello All:

I am new to the investing and am in great need of an investor to bail me out from a possible froeclosuer.

I was in bankruptcy and it was discharged in May 06′ the problem is that when it was discharged the past due became due and the Mtg. company is calling the loan. Our atty did not tell us this would happen I have since sent in around $10K and have deplieted my savings. I do not want to loose my home. I have alot of equity in it and it is being changed to commercial which gives it more value. I have consulted an atty and he advised me to file Bk again I don’t want to do this I really want to pay my debts like we are obligated to do as good citizens.

Thanks
Eloise

ANSWER

Eloise,
Give me a call and I will talk you though a few options.

Yes, a lender will OFTEN foreclose as soon as a property is discharged from a bankruptcy. If you really want BAD advice on what to do with a property that you cannot afford, ask a bankruptcy attorney.

My experience is that bankruptcy attorney’s almost always advise people to declare bankruptcy, as sort of a one-size fits all solution. Most of their clients end up with a bankruptcy AND a foreclosure, when at least 50% of the time neither was necessary to discharge their debt. Most people have no idea until it is too late that a bankruptcy does not prevent a foreclosure – it simply delays it while making it more likely to ultimately occur and less possible to avoid.

Phill

Phill, you make some excellent points. Your recommendations seems sound.

Many investors (esp CA investors) made a TON of money last 2-3 yrs
in Phx, LV, CA, FL..even places like Bend OR, Salt Lake City Boise
ID, doing pre-con flips, OR just merely buying resale houses on the
MLS and renting them. These markets were heavily driven by
investors (as well as pop growth, job growth, low rates). The real
estate mantra for making money changed from: “location, location,
location” to “timing, timing, timing”.

Lot’s of CA investors have descended on the Texas markets as well.
Most have lower expectations for appreciation here then they did in
these other locales. And rates are higher now then they were then.
Plus, if CA home prices start declining, the investors there will
feel less wealthy and may pull back there buying spree.

Many CA investors buy in the brand new developments on the outskirts
of town (like Kyle, Buda, Cedar park, etc…). This is what they
did in all these other cities mentioned. I’d be interested in
hearing what folks think the chances for appreciation are out in
these suburban places It seems like *suburban* Texas just never
really “pops” in appreciation. Everyone says there’s is too much
land to build with too little regulations for growth to force
appreciation (of course they used to say the same things about
Phoenix that it would NEVER appreciate b/c it has so much buildable
land and it’s too hot). Plus Texas has the highest property taxes
in the entire United States, thus further capping appreciation.

So far it does not seem like the burbs are appreciating much. It
seems like all the appreciation is in close in Central Austin and
West hills. Maybe high Central prices will force more further out
to buy?

ANSWER

I too have observed the phenomena of watching CA investors come in and buy NEW construction in Round Rock, Cedar Park, Leander, Kyle, etc. They seem to be happy paying near retail. I buy in the same neighborhoods through pre-foreclosures at a big discount. I don’t understand why most of the CA investors don’t want my pre-foreclosures, which are often 1-3 years old, and at the bigger discount than new homes (even after repairs).

The other phenomena that seems odd to me is watching CA investors buy $175K - $225K homes as rentals. They don’t all do this, but many do, and given that the majority of the rental market is $900 - $1200/mo, it would seem like it would be very difficult to rent these and /or you would have to take a lot of negative cash flow on them.

I have kept, as rentals, some homes I’ve picked up in these out-laying areas. They have not performed well compared to my homes in central Austin. They are harder to rent. I don’t really feel like they will do as well in the future as my central Austin properties. I’ve got to find a screaming deal (<$55/ft) before I’ll buy and keep a rental in Round Rock, though I’ll flip them all day long.

I am very curious to see if the raising prices in Central spill out into the suburbs where prices have been flat or down and you really can get a lot more house for the $$. I’m also curious how all to toll roads and other road construction will affect prices. I’m personally hoping some of the CA cash influx will cause some price inflation here like it has in other places. My guess is that prices in our out-laying areas have been so low for so long, that they should begin to creep up (maybe jump up), but only time will tell.

UPDATE: We are still waiting for prices to raise in the outlying areas. As we have studies this further over the last two years, we have developed a comprehensive appreciation model - our conclusion: most of these areas are not expected to ever appreciate to a level that would make them worth owning rental property in.

Phill

Sir,
You always seem happy to help newbies in real estate business. I can really appreciate this. Helping others. Your information has been “right on” in most cases.

I have been in the real estate business all my life. I’m 63 years tired. I live in the hill country. On Lake Buchanan to be exact. In my past I’ve been very active in investment Real Estate but am too far from the Austin market to become actively involved. Too young to retire, but do want to slow down. So I have been toying around with the idea of becoming a “hard money lender.” This is a problem, because I’ve never been involved in this type of lending. I have bought several discounted mortgages in the past, but never loaned out money.

To keep it simple, I’m looking for a Mentor, someone to teach me the business, hold my hand, lead me thru a couple of deals. I don’t want to get burned. Been there done that. Can’t find much information, and no books or tapes. I guess the business is too state specific.

I operate using LP’s and LLC’s so i am familiar with how they work. I’ve never seen a partnership agreement as you mentioned above. I would be very interested in reading such a document or examples of such a document. It would give me some guidance in what issues need to be addressed before checks are cut.

Any suggestions as to where I can get some information would be greatly appreciated.

Thanks in advance for any guidance in this area.

Thank You
Philip

ANSWER

Philip
I do these frequently with other investors. Partner find deals, I fund them, we split the profits.

I use a simple Limited Partnership Agreement that we customize for each deal. It defines the responsibilities of each party, what is considered as profit and expense, and how profits/losses are to be divided, etc. It also has other boilerplate needed in limited partnership agreements.

The actual buying and selling is generally done in the name of the person/company funding the deal, or in an LLC created to hold the property (if it will be held for a long time), or in an LP created to flip properties (this is what I use). Most people don’t care who’s name the property is in, they just want their fair share of the profits.

CONTINUED

Regarding you question on lending:

Philip,

I’ve come to know a lot of people that do various types of lending. Most fall into the category of ‘hard money lenders’ and ‘private money lenders’.

Hard Money lenders get higher interest rates, but also have to work a lot harder for the money. The work is in the form of responding to lots of calls from yahoos and newbies that want to borrow money on shaky deals, and having to do a lot of homework and sorting though a lot of deals in order to find the ones worth funding. Most of the private individuals that I know that have gone this route, have either backed away from this to become private money lenders or given their money over to established hard money lending institutions, like Funding Partners, among many others. Jules Caplan is an example of a local investor that also does hard money lending. Jules has lots of stories about the frustration of running down deals from people that exaggerate values, underestimate repairs, and simply don’t know what they are doing.

Private money lenders work more through relationships with a smaller number of experienced investors. Private money lenders can do recourse loans (where the borrower in personally liable for the money), can choose to work only with borrowers with good credit, and sometimes even choose to invest at lower LTVs for lower risk.

For example, I’ve got perfect credit and a personal net worth of more than a couple million dollars. That said, I can’t personally afford to finance all of the projects that I manage. I prefer to buy at 70-80% (minus repairs) and then fund about 20% of the project myself, so that my own money goes 5x as far. This means I need to borrow 80% of the project costs, but the lender is only loaning money at 50% or so loan-to-value to someone with experience, perfect credit, and personal liability (and their one $$) in the deal. This is about as easy and low-risk as a loan can get. For this sort of loan, I might pay 10% interest, but no points. Obviously, that’s not as good of a deal to a lender as a hard money loan, but it’s also virtually risk free and work free.

So, are you looking to be more of a hard money lender or private money lender?
Phill

I have a friend that would like to work together and
provide the necessary money for any subject to deals I
locate, and we then turn around and sell.

Any suggestions on how we should construct this
arrangement?

Thanks, for any and all assistance.

Barbara

ANSWER

I do these frequently with other investors. Partner find deals, I fund them, we split the profits.

I use a simple Limited Partnership Agreement that we customize for each deal. It defines the responsibilities of each party, what is considered as profit and expense, and how profits/losses are to be divided, etc. It also has other boilerplate needed in limited partnership agreements.

The actual buying and selling is generally done in the name of the person/company funding the deal, or in an LLC created to hold the property (if it will be held for a long time), or in an LP created to flip properties (this is what I use). Most people don’t care who’s name the property is in, they just want their fair share of the profits.

Phill

I am in the process of doing a complete remodel/addition on one of my properties. I keep getting different stories from my homeowner’s insurance about what is covered and what isn’t. The contractors are all covered on their own, but what if the whole thing caves in? or there is a fire or vandalism? I know that if the property is vacant for more than 60 days the policy is invalid. Has anyone had any experience with coverage during this type of work period? Should I be looking for a differnt type of policy while I do the remodel?

Lisa

ANSWER

Lisa,
You need to buy a “Builders Risk” policy. I use buildersrisk.com issued by Farmers (and others). These policies specifically cover VACANT homes under construction/renovation. Once the renovation is complete, switch back to a conventional homeowners policy.

As far as contractors and liability, you might want to talk to your insurance carrier about a personal liability umbrella.

Phill