Posted by cork horner on May 05, 2008 at 22:07:25:
Thank you for your input Michael.
I appreciate your taking the time to add your experience into the fray.
Yes, I am aware of the changes taking place in the current financial illiguidity [spelling]. Makes for structuring new approaches doesn’t it?
cork horner
san diego
using paper for ‘skin in the game’ - Posted by cork horner
Posted by cork horner on May 05, 2008 at 10:39:47:
Hello paper to gold fans,
Yes, I’m a fan of TLV…
I am inquiring to the experienced knowledge base here as to how to use paper to create ‘skin in the game’ on purchases.
In my case commercial purchases.
David Butler, I briefly said hello to you when you were holding court at the convention. I did not sit in your roundtable as I was busy being entranced by TLV hisself.
I am a novice at paper transactions and seeking info on my topic here.
cork horner
san diego
Gimme Some Skin?! - Posted by David
Posted by David on May 09, 2008 at 14:49:20:
Hello Cork,
Sorry I am just able to respond, but have had a heavy calendar going on here the past few weeks.
Yes… we had a nice little visit there for a bit in the hallway as I recall during this past March’s CREO Convention in Las Vegas. Not to mention our several conversations from time to time back in the mid 1990’s. Glad to see you are still out there kicking around, and appreciate your interest here. Hope I can help.
As I first discussed here back in August, at:
Re: Something Old… New Again?
http://www.creonline.com/cashflow/wwwboard3/messages/23168.html
the commercial real estate markets were already beginning to feel the pain by midsummer 2007. Numerous articles and reports for very well-place sources are confirming how much more difficult it is growing by the day out there in that respect.
Consumers and businesses have found it much it harder to borrow money over the past three months, the Federal Reserve reported Monday, a sign that the historic credit crunch now hitting the economy is still worsening despite Herculean efforts by the Fed. Banks said they were restricting credit because of worries about the economy, worries about risk or illiquid markets, and worries about their own fragile capital position. Banks were increasing interest-rate spreads, requiring more documentation, demanding more collateral, or requiring co-signers and or covenants before granting credit.
The commercial real estate market has also been hit hard. Nearly 80% of banks tightened standards for commercial real estate loans, just down from the record 80.3% that tightened in the previous quarter. For commercial and industrial loans to businesses, 55% of banks tightened their standards, even though demand for bank loans increased slightly because funds were not available in other markets, notably the commercial paper market.
Of course, Terry Vaughan (TLV) is a dealmeister extraordinaire when it comes to pyramiding, as are John Behle and Mike Morrongiello. (I might add here that Terry and RE Financing Forum host Ed Garcia teach a Lender’s Workshop that addresses issues of how to work with lenders to establish Working Lines of Credit for real estate investment that allow 100% funding in some cases, and give credit for “dead” equity in certain situations (i.e. you are buying property with FMV of $400k, for only $300k… and bank makes loan of $300k; rather than only lending $225k, and requiring you to put down $75k).
Mike’s response here is right on point with the important benefits of understanding “walking the mortgage” (aka substituting collateral) within the context of “pyramid” financing techniques which are the heart of CREI for wealth building. And Mike also touched on an important point with regard to the “skin” in reference to whether or not any banks will still consider that “dead equity” conversion to be true skin in their underwriting in the current marketplace. Same holds true for trading paper, and several related “pyramiding” strategies.
Undoubtedly they will, but that is an important part of the process. Finding out who the players are, and having a sound strategy, backed up by serious detail work, some of which I touch on broadly in the discussion at:
Re: Sand Castles?
http://www.creonline.com/cashflow/wwwboard3/messages/23564.html
and the related links indicated in that post.
A big part of the solution lies in understanding several things. Having “skin in the game” is determined by two factors;
exposed collateral or equity “at risk” by the investor seeking the loan; perceived psychological commitment of investor to protecting that against that risk;
bank’s belief in the “skin’s” value as collateral, and its current policies on how the determining factors they are reliant on are weighted toward your investment proposal.
BTW… very much worth considering that these days - commercial real estate transactions have always had a much higher percentage of seller financing involved in the mix than residential does (and were not impacted by subprime lending competition near as much), partly for the simple fact that most institutional lenders do no offer very many attractive commercial loan programs broadly - especially for CREI’s looking to accomplish other objectives. And… many more commercial real estate transactions are going to be reliant on seller financing than ever before, because of the tightening of loan standards, and the lack of confidence in the loan markets. Money is still there… just harder to get.
Depending on your objectives, creative use of pyramiding techniques, exchanging, and Land Trusts to augment seller financing approaches, will open a lot of doors to the treasure chest in today’s marketplace.
Hope that helps get you out of the gate at least for starters, and…
Have Fun For A Living
David P. Butler
www.hotspurinvestmentgroup.com
Re: using paper for ‘skin in the game’ - Posted by Matthew Kominiak
Posted by Matthew Kominiak on May 07, 2008 at 15:05:45:
Hello Cork,
I know David’s been on the road a lot the past month or two (having a hard time keeping up with him myself these days!), but looking at your post here, I thought you might enjoy some of David’s responses that are in relation to some of what you are looking for here, and to what Mike Morrongiello has added. Hope you won’t mind my interjecting this information here:
Re: Let Genie Out of Bottle w/Liquid Paper!
http://www.creonline.com/cashflow/wwwboard3/messages/23312.html
Re: Stitching Things Up!
http://www.creonline.com/cashflow/wwwboard3/messages/23235.html
Making Rain and Captial Gain!
http://creonline.com/cashflow/wwwboard3/messages/23999.html
Re: The Right Twist!
http://www.creonline.com/cashflow/wwwboard3/messages/22719.html
Re: Tax Deferred House Swap?
http://www.creonline.com/cashflow/wwwboard3/messages/21542.html
Re: lol. Good points by both of you. BUT
http://www.creonline.com/cashflow/wwwboard3/messages/8973.html
Rule #3 - Avoid Seller Transference
http://www.creonline.com/cashflow/wwwboard3/messages/19444.html
Re: Low Down on No Down… Movin’ Up!
http://www.creonline.com/cashflow/wwwboard3/messages/22197.html
Re: Avoid The Golden Hammer!
http://www.creonline.com/cashflow/wwwboard3/messages/23506.html
Hope you find this information useful, and best wishes for your continued success!
Matthew Kominiak
Using other collateral… - Posted by Michael Morrongiello
Posted by Michael Morrongiello on May 05, 2008 at 15:45:04:
Cork:
Here is one technique;
If you have other properties WITH equity in them - then find a seller who IS willing to hold “Paper”. Howeve have them hold the “paper” secured by the OTHER property and its equity INSTEAD of the property you are acquiring.
EG.
You currently own a home worth $300K with only $100K in existing debt against- thus current the LTV- loan to value is 33% ($100K of existing debt divided by / $300K FMV)
You find a distress seller of a property who IS willing to be flexible and does not need all cash.
Lets assume that home is a real ugly fixer upper you can buy for $100K but fixed up and renovated its worth in todays market closer to $200K.
You put down $10K and ask the seller to finance the balance of $90K by holding a purchase money mortgage to be repaid under negotiated repayment terms to be worked out.
However the $90K will be secured by your existing $300K FMV home (as a 2nd lien Mortgage) and NOT against the home you are acquiring for $100K.
Thus you now have used “dead equity” sitting in that other property to secure the seller financing.
Now you can rehab, resell, or borrow against the $100K home which will be valued closer to $200K once the renovations are completed.
If you do sell off the $200K home then you will have the immediate use of that cash while still not having to pay off the Note seller / holder in full on their $90K Note since it will be secured by the OTHER property pledged as collateral.
Just one of the myriad of ways proper knowledge of “paper” and some of its uses can come into play in this marketplace.
Other Note;
In the past some lenders were giving your a credit of $90K as if it were a cash down payment towards the financing of the property you seek to purchase simply because it was secured by other pledged collateral you owned. That practice may have stopped in todays tight credit crunch market but was going on until recently.
Best to your success;
Michael Morrongiello
www.sunvestinc.com
Author of the following home study courses;
Paper Into Cash - The Convertible Currency - How to Effectively Create Marketable Real Estate Notes
&
The Unity of Real Estate & “Paper” - Advanced techniques for both the acquisition and disposition of properties using Real Estate “paper”