does this sound real - Posted by jim

Real Estate Investing Apartments
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Posted by Jean Dupree on September 16, 2010 at 18:57:15:

I don’t know about the figures involved in WAREIA’s transaction but it is easy to collect rents without owning real property. He uses a land trust in every transaction so he doesn’t take title to real property. His trustee holds legal and equitable title while he owns personal property as a trust beneficiary. It is as the trust beneficiary that he probably is paid rent from the lease agreement his tenant has signed with his Trustee who only directs the trust at his direction.

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does this sound real - Posted by jim

Posted by jim on September 13, 2010 at 20:04:15:

I came across this article:

this guy made an easy $350k. being relatively new in RE investing, can anyone comment on if this sound real, and if so, how involved it is to do something like what this guy did.

jim

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Re: does this sound real - Posted by Mark (SDCA)

Posted by Mark (SDCA) on September 17, 2010 at 09:22:02:

I don’t find this as ridiculous as everyone else. Are there millions of these deals in every town? No, ofc not. But it only takes one.

“She agreed to sell me her loan/note for $145,000. The balance on the first note was $260,000 plus back payments.”

I don’t see this as an absurd discount for a commercial property that is in default. The question I have is how did the single lady get the 1st? Typically, these are owner carries so if she owned it once why was she so worried about owning it again.

" I paid the investor $1933.00 per month from the $9,000.00 a month income from the rentals"

This just means the property is carrying itself (the 1st loan from the private lender). I don’t see what the confusion or concern is here.

"They agreed to sell me their 325,000 loan for the transfer costs or about $5,000 dollars. "

This DOES seem like a pretty silly discount- even for a 2nd loan.

"I had a nice monthly cash flow until I sold the property to another investor for $500,000. "

THis wasn’t a flip. He held it for some cash flow THEN sold it.

The point of all this is that you CAN buy notes at a discount. Just ask Terry. :stuck_out_tongue:

BR,

Mark

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Re: does this sound real - Posted by Jack

Posted by Jack on September 14, 2010 at 02:49:07:

Interesting question.
Sure it is plausible. Highly unlikely though, your chances of winning the lottery are higher. We know that this guy was able to sell the property quickly to another investor for $500,000, but it didn’t sell for $1,000,000, so the real market value of the property was probably around $700,000, which we will use for our analysis.
A woman held a $260,000 1st Deed of Trust on the property. Why would someone sell a $260,000 1st Deed of Trust on a $700,000 property for $145,000? Well the only reason I can think of is that she was senile and/or didn’t understand what she owned. So, not plausible if the selling party of the 1st DOT is sane and sober.
An investor group held the 2nd DOT which had a balance of $325,000. That would be a CLTV of 84% (260K+325K/700K), not great, but hardly a total loss. Since this guy was supposed to be an accountant and the head of an investor group, it would be reasonable to assume he was sane and sober and understood what he owned. I don’t believe that said investment group would sell their $325,000 Deed of Trust for essentially nothing. It just wouldn’t happen in the real world. This is complete fiction.
And why was a guy that didn’t have much more than $5,000 making offers on $1,000,000 properties anyway?

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Re: does this sound real - Posted by Kristine-CA

Posted by Kristine-CA on September 17, 2010 at 11:41:59:

Mark: I think you and I don’t see Hal Howarth’s deal as far out because
we’ve seen them before. Hal appears to be CA Inland Empire investor.
A mobile home park and apartment building and commercial building
in the desert. Yuck. Or Yum.

I think people also misunderstood or overlooked what that deal
involved. The investor had to work/manage the low rent MH and apts
for a year before he sold. 42 MH spaces and 26 apts with only 9K in
rents. That’s not a passive flip. That’s some serious low rent action.
As for the “single lady” (no mention of old lady in Hal’s article) who
was holding the 1st trust deed. Well, I’m willing to bet that she was
the previous owner and that was a seller carryback and she did not
want it back. Again, look at the property.

It’s easy to me to see why the 2nd bowed out on this one as they would
have been required to bring cash forward to prevent foreclosure on the
first. There was no equity. The property sold a year later for less than
the total of the original notes.

The unusual thing about this success story is that it’s actually
somewhat verifiable. Public records being what they are…

Anyway, even if it was made up, the story would have value to me. It
solved a lot of people’s problems. And creatively used hard money.

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Re: does this sound real - Posted by jim

Posted by jim on September 14, 2010 at 13:13:37:

thanks for the great input. being a newbie, I really like this forum, cauz the fact that I constantly get good info from pros like you guys.

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Re: does this sound real - Posted by Eric

Posted by Eric on September 14, 2010 at 13:42:11:

No this isn’t real. There are inconsistencies in the
story. Like he paid the fee to the private money
lender out of rents. How was he collecting rents when
he didn’t own the property yet?
No way this investor sold their note to him for 5K
either.
Is it possible to find little old ladies who can be
taken advantage of and their property “stolen” from
them for a song? Yes, that is possible.
The question is do you want to do it?

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Re: does this sound real - Posted by WAREIA

Posted by WAREIA on September 15, 2010 at 13:31:06:

I just wanted to reply to one of your comments… "How was he collecting rents when he didn’t own the property yet? "

I’ve never “owned” one property. It is entirely possible to collect rents on property you don’t and will never own. I “control” dozens of properties and collect rents from each one. I also pay out RE Commissions and Private & Hard Money Investors out of “rents”.

BTW, the Little Old Ladies in my transactions and any other seller for that matter only get Full Price for their properties. They don’t have to pay Commissions or Closing Costs and NET their full equity.

Although improbable and embellished a bit, the example given is entirely possible.

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Re: does this sound real - Posted by Eric

Posted by Eric on September 15, 2010 at 14:05:16:

Ok, please explain to me exactly how, as the holder of
a note on a property who has not foreclosed, you would
be paid rent on the property instead of the owner of
the property receiving the rent.

Are you the person who posted this fable about making
350K on this deal, because THIS little old lady
certainly didn’t get her full equity.

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Re: does this sound real - Posted by WAREIA

Posted by WAREIA on September 16, 2010 at 10:44:52:

My point is that it can be, and is done all the time using various methods as Kristine has pointed out.

No, I am not the person posted the article. In fact, I haven’t even read it. Again, I was only making the point that it is possible although unlikely and rare.

I was involved in a transaction a few years back on a $75m home in Tennessee where the investors acquired control of the property at $17,000,001, and flipped the property that same day for $40m and made $17,999,9999 cash at closing.

The property was free and clear and the couple were divorcing. She was forced to sell the property and give him every dollar over $17m. So she sold it for $17,000,001. The buyer’s lender appraised it at $75m and would loan the buyer only $40m with 20% down. We took title to the property for $17,000,0001 and then immediately sold it for $40m to our buyer.

Last year our group took control of a $33m property in SoCal for $27m and turned it for the full $33m the next day.

Two months ago we took control of a $180,000 property for $160,000 and turned it that day for the full $180,000.

It’s all relative with the only difference being commas and zeros.

Investors who do these type of transactions typically don’t go to seminars, buy courses or hang out on message boards like this one. These are very shrewd people and really don’t give a hoot about “Old Ladies”.

I won’t explain my involvement but these are not the kind of deals I do. I only offer Full Asking Price for properties based on comps or appraisal so that Little Old Ladies don’t get taken advantage of.

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Re: does this sound real - Posted by Kristine-CA

Posted by Kristine-CA on September 15, 2010 at 14:46:03:

Eric: while the story about that fabulous deal may have been inflated,
and I’m not one to support many of the claims made by WAREIA, it is
totally possible and not that uncommon to collect rent when you don’t
have a deed to property. Agreements can be written any way that
works for the parties involved. Assignments of rents are a normal
course of events in everyday CRE. :slight_smile:

As for your question about note holders and rents: assignment of
rents are a standard feature in CA trust deeds, meaning the rent
belongs to me, the lender, if you stop paying my loan. There are many,
many variables that make collecting rent possible on a deal where you
are not yet the deeded owner (or never even become the deeded
owner). HTH. Kristine

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Re: does this sound real - Posted by eric

Posted by eric on September 16, 2010 at 11:19:28:

I guess I don’t understand your responses then if you
never even read the article the OP cites.
What you are talking about are simple flips. Of
course, those are done all the time. My business
actually is transactional lending to people who do
this.
However, that actually has absolutely nothing to do
with the article that was posted. So your examples
show nothing in relation to the original post.
It involved purchasing the underlying notes at a
massive discount (one being from a little old lady who
got hosed) and then using that as leverage to force the
homeowner out of the property.

As for your stories, I’d like you to show me proof of a
$75 million house ever existing in Tennessee.

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Re: does this sound real - Posted by eric

Posted by eric on September 15, 2010 at 18:49:03:

Point well taken on the rent assigning but #1 He does
not mention going through that process to get the rents
assigned to him. This is not an insignificant process
and though I have never done it, my gut tells me that
it wouldn’t be that easy for the holder of a relatively
small first mortgage to simply swoop in and take ALL
the rents and #2 Does it make sense that this property
owner is collecting 9K in rent every month but can’t
pay his measly $260K first mortgage?
Bottom line is that this story is bogus.

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exactly - Posted by Jack

Posted by Jack on September 16, 2010 at 22:02:50:

The 75 million dollar house in TN (as if there if there is a 75 million dollar house in TN) sold for 17,000,001.00 because of some goofy clause in a divorce agreement sounds like a variation of the urban legend where a guy sees an ad in the classifieds for an expensive sports car for $100, even though he thinks it is a misprint, he calls the ad and the woman explains that her husband ran off to (fill in the blank tropical island) with his secretary and asked the wife to sell his car and send him the money. I am not buying it, this should be easy enough to prove just give us the address of this $75,000,000 property in TN.

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Re: does this sound real - Posted by Tom Thumb

Posted by Tom Thumb on September 18, 2010 at 08:19:58:

Eric, WAREIA’S assertion that he collects rent without holding real
property is not bogus. It’s done all the time. When you put your
property into a land trust, your Trustee assumes both legal and
equitable title. You are a beneficiary of the Trust and own personal
property, not real property. As the beneficiary, you lease out your
property through your Trustee who collects the payments, pays the
mortgage, and you get the profit if any. I have controlled several rental
properties this way over the years. In fact, by doing this your Tenant is
allowed to write off the mortgage interest by the IRS because he/she
has been made a Beneficiary of the Trust and is considered an owner by
the IRS. It is the ONLY way I know of that a tenant can legally do this
without owning the property.

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There’s gold in them thar bogus stories - Posted by Kristine-CA

Posted by Kristine-CA on September 15, 2010 at 20:24:15:

Well, there’s no point in going further with an example of CRE that we
don’t have the facts on. You say you haven’t done what was described
nor do you know how it could/would work, but you say it’s bogus.

The story may be bogus, but unless you’ve worked some seriously
messed-up title and encumbrance problems,worked with sellers/heirs
that have millions in the bank but can’t find their way out of a real
estate paper bag, and get to deal with their tenants, druggie and
incarcerated relatives, the city/county code divisions and the
courts…sometimes all of these issues on the same property…and
profited well at the end, you haven’t lived. Seriously, that stuff is the
bomb…and so much fun.

I say keep your ears and eyes open…for the rational, discerning,
creative investor, there’s an education in that bogus story.

Just the way I see it…Kristine

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Re: exactly - Posted by eric

Posted by eric on September 17, 2010 at 09:21:49:

Yeah, here is a much more plausible scenario. House is
worth $34M (still pretty extreme for TN), divorce
happens. Settlement says the wife gets the house so
she has to pay half the value to the husband so the
public records show a transfer of ownership at $17M.
Happens all the time and lots of newbies can be
confused and think that a real “Sale” took place at
that price.
RE hypsters take that public data out of context and
use it to convince those newbies that they have some
miracle money making system.

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Re: There’s gold in them thar bogus stories - Posted by Jack

Posted by Jack on September 17, 2010 at 09:29:44:

I love seriously messed-up titles also, but now I prefer to wait till they go to foreclosure, and/or do the foreclosure myself. It had been my experience that 80+% of the time that I would approach a homeowner to buy their seriously messed up title house, after I had spent a good deal of time figuring out how to unravel their title problems, they would conclude “hey if this guy thinks the house is worth something with all these encumbrances there must be some way to fix this mess ourselves”, so right or wrong they would refuse to sell to me and attempt to unmess, what they had previously thought was hopeless, their seriously messed up title on their own or they would shop it to other investors, one of whom would inevitably offer them some too good to be true option/profit sharing deal where they would eventually get shafted.

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Re: There’s gold in them thar bogus stories - Posted by eric

Posted by eric on September 16, 2010 at 17:21:11:

I am sure there are many types of interesting and unique
transactions. Not sure what that has to do with the
original question of this thread but fine.
If you learn alot from bs stories, more power to you.
I’ll stick with the truth.

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Re: or… - Posted by Jack

Posted by Jack on September 17, 2010 at 09:36:06:

or… there actually is such an ill concieved clause in the divorce settlement. Ex-wife lists the property for sale at $17,000,000, five minutes are it goes on the MLS, an offer from a friend of the ex-wife comes in for $17,000,001. Ex-wife’s friend resells immediatelly at $30,000,000, ex-wife and friend split profits.