All Forum Posts by: Jay Hinrichs

Quote from @Jack Seiden:

Quote from @Brian Adams:

@Jack Seiden

There is a lot more variability in commissions then 2.5-3%. 

If you are looking for a discount listing agent, I can point you toward many. All of whom existed long before this settlement. 

Here is the range of cooperating commissions on DFW duplexes listings active as of last week. Is this collusion? Looks like there are plenty of options. 

 1st of all this is for duplex’s only, 2ndly I can’t speak for Dallas but I know in the Kansas City area (where they were sued) 98 of commissions were between 2.5-3% and 94% of the time it was 3%.

west coast did away with 3% bAC long ago.. by did away I mean the market went that way because we know commish is not fixed.. 6% became 5% some years back and 4% on higher end..  I have not paid a buyers agent over 2% in years .. And in this market if you have a 5% listing the listing agent will take 3% and sometimes split it.  2.5 each.

In new builds 3 years ago Lennar in their hot developments only paid 5k total and these were 450 to 550k houses.. I was paying 10k BAC and my houses were 600 to 800k..  as the market softened with Interest rates I had to move back to 2% and some of my competition went to 2.5 and 3.0 to drive traffic and buyers.. But our product was/is nicer so we are out selling the other developments regardless of commissions offered except Lennar as they are hundreds of thousands cheaper for same sq foot.. and I think my wife double ends almost half our sales.. WE grab them at Sunday open houses or off our website. But we dont discourage co op or try to steal clients from other agents..

On the flip side some of my agents that sell my property I pay them 10%  but we expect a lot of foot work for those fees.. This is for our mid west or land deals we do outside of the west coast.. we do a LOT of land deals/ FLips  in the Rockies and so on.  And even in Texas :)  

And myself when i used to sell property as a broker I usually worked on tough to sell properties or builders that needed to liquidate.. Kind of like you are seeing now with the  Turnkey sales companies selling new builds.. their fee's will exceed market conditions.

I had one builder that his bank was all over them  he had 22 standing duplexs that were not moving..  they were selling for 200k in the day.. I charged him 30k EAch to sell them.  And what I did was a fly buy program I did a big production in SF Bay Area I rented a big conference room gave out stone tickets and spent probably 60k on marketing to drive traffic to the event.. And it was awesome I wrote them all up that weekend.

I had my wife and two other agents helping me..  So as we can see commish's are negotiable both up and down.. If I am the Broker then its UP if i am paying then its down.. If someone hired me they were hiring me for my expertise and my ability to front expensive marketing campaigns.

It could have been a bust and I would have lost 50 to 60k..  Risk reward. this was 2005.. 

Quote from @John Underwood:

Quote from @Joe S.:

Quote from @Tom Gimer:

From elsewhere in the new law:

The advertising and marketing of real property is to be distinguished from the advertising and marketing of a contractual position in a sales agreement to purchase real estate. An advertisement that markets a contractual position to acquire real property from a person with either equitable or legal title and does not imply, suggest, or purport to sell, advertise, or market the underlying real property is permissible under this section.

People need to read closer.

 Another good catch Tom. 
So all the Wholesaler needs to do is disclose that they are selling their interest in their contract and that they do not own the property.
Did I read that right? 

Example.
XYZ Main Street

Little town south Carolina

Three bedroom two bath.
Asking $3 million 

This will be a contract assignment and we do not own the property simply assigning our interest in our option to purchase contract.

For more information, please call  870-613-xxxx.

( PS I am just guessing and I’m nobody’s legal counsel and don’t wholesale in South Carolina.)

 No attorney is going to risk closing an assignment in SC.

it will be their underwriters those that write the title insurance that will have a say in this I suspect.

Quote from @Brian Burke:

Quote from @Guy Idan:

@Brian Burke - Dropping a question on you as you are well versed in this world - It seems that Ashcroft has an LTV of about 80% at the moment, or 78% if you take out the $14m loan ashcroft themselves gave. For my personal properties, I like to have 65-60% LTV, so 78-80% LTV during a time when the properties were purchased of record low interest rates, and with fluctuating interest rate, seems extremely irresponsible and almost foolish. 

Do most syndicators use these LTV's and is it common or did Ashcroft make a big mistake on that one?

Appreciate your feedback!


 

I won’t opine on whether Ashcroft made a big mistake—their investors will ultimately be judge, jury, and executioner based on the final outcome.  Even if I did comment, my Monday morning quarterbacking should be dismissed as inadmissible because, for lack of a better definition, I’m a competitor of theirs.

But I can speak to my opinion as an operator, in a general sense, not specific to Ashcroft because I’m not familiar with the financing of these assets.

Borrowing with short maturities dramatically increases risk, always. Ten years into a bull run amplifies that risk. Doing so with a high LTV amplifies that risk even further.

Investing in a syndicate comes with risk and the idea is that investors should seek a risk adjusted return.  By that, I mean that the returns you expected should have been significantly higher than the returns from a similar investment with a more conservative financing structure. Was it?

The problem I see is passive investors frequently don’t invest on a risk-adjusted basis.  Instead, they invest in the deal that projects the highest return.  And how do you get there?  High leverage.  Multiple share classes.  Preferred equity.  Mezzanine debt.

This pushes groups to finance this way because “that’s what sells.”  It’s no accident that many of the groups you see today running into serious trouble are groups that acquired a lot of assets near the market peak using tools such as this that juiced projected investor return. 

And to somewhat answer your question, a LOT of buyers were financing this way. Before I stopped buying in 2021, after being outbid by millions of dollars on a regular basis, I started asking brokers "how many of the other buyers are using bridge debt?" Their answer: "All of them." (I was underwriting to 60-65% LTV with one share class and no subordinate mezz/pref.) So I started selling off my portfolio. Among the groups bidding on my properties, how many were using bridge debt? Most of them.

On the other hand, groups that used more conservative finance structures didn’t grow as fast because, in part, the investors weren’t fueling them to the same extent.  Also in part, because they couldn’t underwrite to as high a price as the higher-risk groups.  And in part because groups that finance conservatively tend to buy conservatively, which doesn’t result in much when a market is topping out.

And just a comment about your statement that the Ashcroft properties have an "LTV of 80% at the moment." Then you said "80% LTV…when the properties were purchased." Depending on when these properties were purchased, along with a handful of other factors, these two statements could be mutually exclusive. Multifamily values have fallen somewhere between 20 percent and 40 percent since 2022, meaning that the LTV today could be greater than 80%, and very easily could exceed 100%.

Brian,  using your thought process that value from when these folks bought the buildings have retreated 20 to 40% and since we know they were bought with Max debt 80% as you mentioned they need to do this to show highest returns so they can compete with others showing those returns as well.  

Now given the situation of NO equity right now to negative equity it seems throwing in more cash would be digging a deeper hole and how is it realistic that these props will go up not only what they are under water today but the added capital JUST to get your capital back forget about any return.

Just curious seems like simple math based on your opinions of current values in the B C class MF in the areas I have to assume these are.. I know its all assumptions ..

Seems to me the play today is simply be a preferred equity investor.  Instead of a cap call maybe ask to join the preferred so at least you get to offset your loss's .. ???  these investments get complicated thats for sure..

I have a few clients of mine that were in MF in PHX area and they did the same thing you did when they were getting offers at 3 caps they sold out.. Now they have all this cash to go into new deals with ME so I like that personally :)

Quote from @Russell Brazil:

I'm as familiar with it as they come. I'm an NAR board of director member.

I gave an interview to Axios last winter where I detailed the likely outcomes.

Russell I had my first contract come in on one of my new builds and the commission was simply one of the line items in the addendum.. it became a negotiating point and thats what I did as the owner/seller I did my counter and part of it was a commission adjustment to the amount the agent put in the offer.. We just completely ratified  ( we means  Ms Lori) ratified it a few hours ago so everyone is happy at this point.

so instead of the commish being offer in the listing as a BAC and the buyer not knowing how much it was ( seller knows of course) Now it was fully disclosed up front on the buyers contract to purchase. 

Quote from @Aaron Fine:

Quote from @Andrew Postell:

@Aaron Fine what you need is a new build or construction loan.  There's specific products for what you are trying to do.

I’m the lender. It’s an investment for me. He’s not going through a bank. 

its a construction loan you do yourself.  I do these routinely for my clients and we use our own money.

you provide a first position loan at no more than 55 to 65% of finished value. I would also have a good appraiser to an ARV apprasial so you know the numbers all work IE land costs and build cost and then there is significant equity still there. Normally builder will pay cash for the lot like i do that their skin in the game.. If they have no cash your taking a huge risk on a ground up new build. and for that you would want to get a standby rate of interest like I do say 10% and I would charge 50% of the upside profit.. if they are putting cash into it.. 3 to 4 points and 10 to 15% interest is market.
and you give them money in draws as work is completed.. You hire a construction draw company to make sure building is done right etc. Also control the draw funds pay the subs directly and get lien releases .. I NEVER ever give my GC all the money I always pay the subs directly. 
this should get you started.

Quote from @Guy Idan:

@Brian Burke - Dropping a question on you as you are well versed in this world - It seems that Ashcroft has an LTV of about 80% at the moment, or 78% if you take out the $14m loan ashcroft themselves gave. For my personal properties, I like to have 65-60% LTV, so 78-80% LTV during a time when the properties were purchased of record low interest rates, and with fluctuating interest rate, seems extremely irresponsible and almost foolish. 

Do most syndicators use these LTV's and is it common or did Ashcroft make a big mistake on that one?

Appreciate your feedback!


 

I wont answer for  Brian the expert.. But in my mind I dont care what you bought from an SFR rental to a SFR personal resi etc. if you leveraged 80% in the last few years ( with very few exceptions) if your selling or forced to sell transaction costs and with income property in many areas the values have gone down if you have to sell now so to my way of thinking most folks that have 80% ltv have zero equity or net worth if you take a snap shot in time like today..
I dont know how LPs cant understand that 20% equity is basically no equity if market turns a tad or your forced to sell after a brief holding period ??  thats my thought.  same goes with those that bought homes to live in if you have to sell in a year or two your going to lose money.

Quote from @Chris Seveney:

Quote from @Navjeet Singh:

for example here is detailed documents for one asset held in Ohio - https://asset.lofty.ai/LFTY0007 

 Time to get an attorney involved

Chris you may note on the settlement statement 17k assignment to Martel .. He is a turn key guy and now sells a how to BRRR service.. I am not sure this ends well for these folks.

Quote from @Kristen Haynes:

@Jay Hinrichs Yes, I got mine back and my Accountant took it that same year, saved the next one for this year, which offset my taxes both years- very helpful to keep for the years where I made more money than others.

Yes, I am a Realtor in both Charlotte, NC and in Charleston, SC- I own a three bedroom short term vacation rental in the Wild Dunes resort just outside of the Charleston Penninsula in nearby Isle of Palms, SC- that's the one that I did the Cost Seg on that saved $278 K. I expect to retire in the Charleston area, but that's a ways off, as I am only 56- I'll rent or sell the IOP / Wild Dunes villa and get a home with an elevator so I can 'age in place', lol.

not to get way off topic but if I found Charleston 30 years ago I would have moved there and set up shop.. Folks on the West coast I dont think understand much about Charleston and IP etc.. Lots of money in that town.. I built 7 new st.  and many many others in the historic area. I was the first one to build across the tracks . And now that area exploded my first home i built I sold to Shep :) And it was on his TV show.

Quote from @Kristen Haynes:

Quote from @Jay Hinrichs:

Quote from @Kristen Haynes:

Quote from @Kyle Mccaw:

@Joe S. I had cashflow from other properties and business income to cover the shortage. I pushed rents up hard. What sucked was the capital gains tax I generated at each sale when I didn't get cash at closing. I did get to 1031 some of them at the end. I did end up making a great return. It just hurt like hell for a while.

 @KyleMccaw- if you haven't done an Engineering Based Cost Segregation study yet, you should. It will give you back some of your money that the IRS is 'holding' that you can get back! Reach out to me to learn more, or attend this webinar (you can also make residual income as a Property Manager for your owner clients that can use these strategies, as well.

The very first thing to do is to do an 'Engineering Based Cost Segregation' study performed to see where you can get back some serious money, using your rentals, to get back some serious money from the IRS. They're cheap to do, compared to the money that you would get back. and these strategies can be used over and over again, with each property acquired or rental-renovated. Reach out to me if you would like more information, and we'll see how much cash we can get back for you to offset your losses and expenditures (100% free to do the study, then they give you the amount of the savings and cost to get that money back, and you then determine if you want to move forward).

There's also a FREE webinar discussing this tax strategy tomorrow, Wednesday May 15th, at 10 am PT / 1 pm EST that you may register for here (safe link): https://linda-b251e.gr8.com/

Best of luck to you! Kristen Haynes Realty Pros / Northstar Group

Kristin,  Not commenting on your advice.. cost seg is a tool for ones tool belt.. but there has been big threads on BP lately about those who cut and paste answers .. and i see on this one thread you have done that twice.. I suspect you have a ton to add but careful with just cutting and pasting your
Engineered Cost seg comments on multiple threads is going to get you put into time out :)  

@Jay Hinrichs Thanks, I didn't know that one could not post in multiple areas- it is applicable to all areas posted, but thanks for letting me know! And- agreed, this is one idea in a toolbox full of them- but I wish that more Investors used this strategy, as many people don't even know about it. I saved $78 K on one rental property and $278 K on the other- doing three others once I make some renovations. My reaL estate client just make $320 K and $68 K, respectively, for less than a 10% fee- and she was over the moon! I apprecite your advice- hopefully, they won't kick me off for trying to help other Investors! :) Kristen

also keep in mind  ( I have used cost seg personally as well ) that you dont make those dollars per se you lower your tax burden but if you do sell you have to recapture that.. so its not like earned income that never gets taxed etc.. of course if you keep for ever and give the asset to your kids with stepped up basis that does make that saving pretty much earned.. But you know who is thinking 20 to 30 years from now. LOL..  PS I love Charleston don't know if you work there but I built about 35 homes in the downtown core over the last 8 years.. But alas I cant find any lots that work anymore.. it was a great run though !!

Quote from @Kristen Haynes:

Quote from @Kyle Mccaw:

@Joe S. I had cashflow from other properties and business income to cover the shortage. I pushed rents up hard. What sucked was the capital gains tax I generated at each sale when I didn't get cash at closing. I did get to 1031 some of them at the end. I did end up making a great return. It just hurt like hell for a while.

 @KyleMccaw- if you haven't done an Engineering Based Cost Segregation study yet, you should. It will give you back some of your money that the IRS is 'holding' that you can get back! Reach out to me to learn more, or attend this webinar (you can also make residual income as a Property Manager for your owner clients that can use these strategies, as well.

The very first thing to do is to do an 'Engineering Based Cost Segregation' study performed to see where you can get back some serious money, using your rentals, to get back some serious money from the IRS. They're cheap to do, compared to the money that you would get back. and these strategies can be used over and over again, with each property acquired or rental-renovated. Reach out to me if you would like more information, and we'll see how much cash we can get back for you to offset your losses and expenditures (100% free to do the study, then they give you the amount of the savings and cost to get that money back, and you then determine if you want to move forward).

There's also a FREE webinar discussing this tax strategy tomorrow, Wednesday May 15th, at 10 am PT / 1 pm EST that you may register for here (safe link): https://linda-b251e.gr8.com/

Best of luck to you! Kristen Haynes Realty Pros / Northstar Group

Kristin,  Not commenting on your advice.. cost seg is a tool for ones tool belt.. but there has been big threads on BP lately about those who cut and paste answers .. and i see on this one thread you have done that twice.. I suspect you have a ton to add but careful with just cutting and pasting your
Engineered Cost seg comments on multiple threads is going to get you put into time out :)