investor wants short notes, how from l/h deal? - Posted by Philip

Posted by Philip on June 17, 2003 at 18:23:40:

Thanks Lyal, for the reminder.
I think I was actually moving too slow for my folks, not on terms that were too slim to suit them…they were going to hurry their money back into a long term low yeild CD until I convinced them that I could keep their money busy, even as a development fund or bridge loan.
They could make as much in a few months or a year, or two…as they can in 10 on a CD!

So we will see…and thanks again!

investor wants short notes, how from l/h deal? - Posted by Philip

Posted by Philip on June 16, 2003 at 07:05:43:

How do I keep investors involved with short terms on their investments when doing land home deals?

If I have to carry the l/h on borrowed money, by contract for deed to my buyer or if I have to rent the l/h?

How can I keep investors involved who want short terms, when I will be carrying or renting on longer terms than a traditional lonnie deal?

What am I missing?


Re: investor wants short notes - Posted by Tony-VA/NC

Posted by Tony-VA/NC on June 16, 2003 at 08:31:10:

Investor funds are simply a step in the system.

If you are going to purchase the Land/Home (L/H) package outrigt for a price discount, then you are going to seek a lender who will offer a reasonable rate and amortization period. You provide for their wishes of a shorter pay off by providing for a balloon in a shorter period of time.

This should be done with caution as balloon payments have ruined more than one investor.

You might want to include a clause that allows you to extend the balloon a few years by paying a stated fee.

As for contract for deed and other creative techniques, you should not need investor cash. That is why those techniques are creative.

The method of purchase will also be dictated by your long-term intention for the property. If you are going to rent it then short term financing is not the best choice. If you are going to buy the property in your corporate name, season it for a year or two then seek to refinance it through a bank, using the corporate name, then a private lender may be necessary.

If you are planning on buying the property with the intent to sell it, then private money may be the answer.

Just be sure you have backup plans for funding that balloon.


Re: investor wants short notes - Posted by philip

Posted by philip on June 16, 2003 at 15:59:15:

If the investor agreed would it work to have a simple rate call every couple years, with no finance charge, or very little?

The investor would be worried about keeping ahead of CD rates by some points, and wouldn’t necessarily want to charge me for the refinance of the smaller amount.

The rate could be adjusted if necessary, the new smaller amount refinanced…maybe with a slightly shorter term, than what would have been left over in the original loan statement.

It seems by this method the length of the term of their investment could be shortened, gradually, and still be of benefit to me.
If they started with a 15 year note, and refinanced at the rate call every 2 or 3 years…it seems their length of term would become shorter, and the money would still be relatively cheap for me, even if a tiny refinance charge applied.

Re: investor wants short notes - Posted by Tony-VA/NC

Posted by Tony-VA/NC on June 16, 2003 at 16:56:39:

The answer comes down to, “whatever you can negiotiate.”

One investor may have a different standard or goal than another. The first deal or two with an investor is like a proving ground. Your payments being received each month, on time as agreed, will no doubt place the investor into a comfort zone with you and your deals.

If the investor is seeking to simply keep money in motion, then your approach may well fit their scenario. If they are seeking to retire on that money in 10 years, then they may see it differently.

In time, you will understand how to help investors help themselves, via self-directed IRA’s. By becoming an conduit to solving their investment desires and your need for cash, you create a win/win situation.


Re: investor wants short notes - Posted by Philip

Posted by Philip on June 16, 2003 at 22:54:06:

They want to keep their money in motion, but not for “single family home” type of terms.

My folks and their friends have got spoiled on those little mh notes!

I think I can convince them to keep investing with me on these longer terms, because I have proven reliable, and I beat the heck out of any other passive investment they can find!


Re: investor wants short notes - Posted by Tony-VA/NC

Posted by Tony-VA/NC on June 17, 2003 at 10:05:57:

You need not make the terms of the note sound that much different than you Lonnie notes, but you need to emphasize the advantages.

Let’s say your investor is only willing to lend money for 4 years (as in a Lonnie deal perhaps).

Explain to them that you are giving them an opportunity to invest in a real estate mortgage, which is far more secure than just a mobile home (use a common prejudice to your favor).

Ask them, “Would you be interested in loaning money on real estate if you had all your money back in 4 years?” (Just like they do with your Lonnie notes). You are seeking to make it impossible for them to say “no”. They are already used to loaning you money for that long.

Then you work the terms of the deal privately and come back to them.

You need to know what the land/home will rent for (or sell for) realistically. You need to crunch you numbers so that the payments are reasonable and that you make a nice spread. You will later explain to your lender that this is how you make some money as well as provide for their safety by building in a reserve fund in the event of vacancies etc.

Approaches change with time but for now I prefer to talk real world concerns with my private lenders on their first deal or two with me. After that, you usually need only tell them the amount you need and when the closing is.

Answer their concerns upfront and show them that you are making a profit that you are comfortable with. I do this not to expose my hand but to ensure them that the deal is not “skinny” and they are not at risk. On the first deal, they need something to base their trust upon. After I have proven myself, it is no longer necessary.

Then I work in the terms of the loan. Payments of $xxx, amortized over 20 or 30 years with a balloon payment in 4 years. This way you are able to do the deal and make a spread that is comfortable for both of you. They get all their money back in 4 years. (Be sure to prepare for this and have back up plans).

You should consider including a clause that allows you to pay a one time fee to extend that balloon. They may or may not go for this on the first deal but once you have proven yourself on similar deals, it will not likely be an issue.

Just be sure to prepare for the balloon. I cannot stress that enough.

Balloons are not the only way to do this and all methods should be considered.
This is one method used to get the best price, a fast closing and it allows you to take title in your company name (although you may still have to sign as the guarantor on the first few deals at least).


Re: investor wants short notes - Posted by Lyal

Posted by Lyal on June 17, 2003 at 08:48:00:

You need to keep the right perspective here. You are creating the opportunity here. You dictate the terms. The rates they should compare to are the rates they could earn elsewhere with their money; CD’s, passbook account, stock market, bonds etc. If investors get wind of the yields you are making, they tend to get greedy. TOUGH!! You are the one flushing out the deals, doing all the legwork and negotiating and taking the risk here. For that you get the lion’s share of the profit. They’ll have to settle for a good yield and a term that works for you, or put their money back into CD’s (certificates of deposit) at 3%! If you look around, there are plenty of people out there that would love to park their money with you.

SnowBirds That are Mad at Their Mutual Funds - Posted by Philip

Posted by Philip on June 17, 2003 at 18:19:54:

I understand now…about the balloon, thanks.
I will see how I can make it work.

As unlikely as it ever seemed to ever happen; my own retired parents are saying…“you work it out, if it is a deal, jump on it…and let us know what you need…”

I tried to talk a few details with my Dad on Father’s day down at the campground they stay in and he didn’t even want to know details…“just let us know”.

So I have earned some trust with them…and they are getting a few of their friends involved. They travel most of the year in an RV…and I hope I can tap into that… “Snowbirds That Are Mad at Their Mutual Funds” resource!

Now to see if I can get slightly larger amounts involved.