All posts by Kevin Amolsch

Kevin Amolsch formed Pine Financial Group, Inc in October 2008 after leaving a small mortgage company as the senior loan officer for residential lending. Kevin has a degree in Finance from Metropolitan State Collage of Denver, which he attended after serving four years in the US Army. Kevin started out in banking, working at First Bank in the lending department while in school. From there he started his first real estate investment company, which is still active today. He owns more than 20 properties amounting to over 50 units and has closed on over 700 transactions as a buyer, seller or mortgage consultant. Kevin and Pine Financial has access to over $30 million in private equity and continues to see strong growth. After college Kevin spent two years working with Wall Street as a mortgage bond analyst before leaving to work as a loan officer with real estate investors full time. He has spent more than 12 years as a real estate investor and 10 years in real estate lending. He is an author and frequent speaker and has been quoted in The Las Vegas Review Journal, The Denver Post, Yahoo Real Estate and several smaller publications and blogs. In 2005, Kevin discovered the niche market of real estate finance and subsequently founded Pine Financial Group, Inc, Colorado's premier hard money lender. To date, he has raised over $18 million in private equity for real estate deals and completed hundreds of private money transactions. As part of Pine Financial Group, Kevin has two mortgage funds registered with the SEC with more than sixty private investors. Kevin is also the Author of, "The 45 Day Investor," a book dedicated to helping beginning real estate investors buy their first investment in 45 days or less.
Stay safe with due diligence

Private Equity Due Diligence – Stay Safe

“All your money will be invested in real estate with a guarantee of 12% returns.” This is what you are told by someone asking you to invest with them. You think to yourself; “This sounds like a solid deal and this person was referred to me by a respected local company.” Two months later your entire investment is gone and you found out that none of the money was invested in real estate. Now let’s assume you are approaching 60 years of age and are now forced back into the workforce in an economy with unemployment remains high. Now you think to yourself; “How could I have been so dumb and how am I going to compete for a job with all these younger people?” “What do I do now?”

My eyes are starting to water as I write this article. This was the last story I heard about someone losing their money by a bogus investment. These are the stories I hear almost every week but this was especially sad because this lady could not afford to have her money stolen from her and now could lose everything.

How do you protect yourself from a person or an investment that is not legitimate when the person selling it to you sounds so smooth and educated? How do you know if your money is safe?

Before you make an investment like this it is important to understand what exactly you are getting for your money. Most of the time these investments are private equity. This simply means that the owners (the equity) are from private people and not an institution. The person putting the deal together is normally a private person too. Equity investments carry a certain degree of risk with them. With equity there is no guarantee of anything, in fact if things go bad you will be the last paid. For example if the project goes bad and ends up getting liquidated the order in which investors are paid back their investments is:

  1. Secured creditor (normally banks or investors making a loan secured by an asset)
  2. Unsecured creditor
  3. Preferred equity holder (this is not as common)
  4. Common equity

It is possible to lose all your money as an equity investor because there is nothing left when everyone else is paid off.

I don’t dislike equity investments at all. In fact that is exactly how I structured our mortgage fund but it is important to understand the good and the bad. The good part of an equity position is that you get a portion of all the profits the venture or company makes so your returns are generally much higher. You are subject to the risks of the company so if the company makes smart investments it is a smart investment for you.

If you are buying equity your will generally either get stock in the company or membership interest in a partnership or LLC. Your diligence should first understand what it is you are buying and then what the company, partnership or LLC does with your money. You will probably want to see a track record and maybe look at some past deals. In our example above the equity investor was told that she would be secured by real estate. In this case she should have look at other projects completed by this group and checked public records on the county websites to be sure she is being told the truth. She could have also asked to see recorded documents with the county’s recording information on it. She will also want to check into the person that is offering the investment. Background checks are a good idea and a track record for the individual is a good idea. If the person has a license through the state the background check and employment and residence history has already been looked into by the state. Not having a license does not mean that they are bad people or doing something illegal but it will require further investigation by you. Again in our example it was later discovered that the person with the opportunity had a criminal history that was not disclosed.

Here is a list of steps that I would take and questions I would ask when looking at a private equity investment:

  1. Do I understand what I am buying (units in an LLC, stock, etc.)
  2. How does the investment work? How does it generate income, how does it pay its investors, when does it pay, what are the risks and expected returns. This is all the basic stuff you should know and weigh the rewards to the risks. This should be easy because it should be disclosed to you.
  3. How do I know the person selling this to me and should I be able to trust them?
  4. How long has the person been in business or at least doing this type of investment?
  5. Do they carry any licensing to do this and can I verify that? If not you should check criminal record to be sure they have not stolen money in the past.
  6. What is the track record for the investment and the person selling it to me?
  7. Can I talk to some current investors?
  8. Do the principals and sales people have money invested in it?

I really believe that you should go through each question/step before you commit to doing any business with them. If it is an option you might also consider investing a smaller amount at first and add to it later. This however is not always possible.

Be careful out there but don’t be afraid to make investments and reach your goals.

Learn Successful Financing Secrets – This Friday

I was just asked to be interviewed on a national radio blog this Friday at 10am MST. Here is a copy of the email that will be sent out to their database and more information on how to register if you want to listen in.

Hard Money: Why Savvy Investors Use It

Learn Successful Financing Secrets

Are you passing on profitable deals because you are not sure how to finance it or don’t think you have the money to do it? Would you make more offers and do more deals if you have virtually unlimited financing?

  • Why and how savvy investors use hard money
  • How to make offers with confidence knowing your financing will come through
  • How to create a cash flowing portfolio with little or no down payments
  • How to use portfolio lenders to increase your rental portfolio
  • Interested in raising private money? Learn why it is a great idea and why you need to be careful
  • Learn why many successful investors become lenders themselves and some common pitfalls to avoid

In this class you will learn about hard and private money and why it is a tool that has made Kevin and hundreds of clients successful real estate investors. You will also learn some key points to raising and lending private money and how to be successful and safe on either sides of the transaction.

Who should listen and why:

Experienced and beginning real estate investors wanting to better understand the current financing landscape
Real estate and mortgage professionals looking for more ways to help their clients and close more deals
Anyone in looking for better ways to finance their financial future

Register HERE

By the Numbers – Analyzing Rental Properties

If you know me you know that I love rental property and believe that it should play a role in most people’s long term wealth goals. Many people struggle with how to run numbers of potential rental acquisitions so I posted a form you can use on our free resources page of our website. The second page of the max offer worksheet walks through how to analyze a deal if you plan to keep it and rent it. In this article I will explain how to use that worksheet.

This is a form that I use but it may not be the best one for you to use in your business. It should, however, be a great start. The reason I say that is because my buying strategy may differ from yours. When I buy a property to hold I have very little concern with speculation on appreciation. In the past I would buy property in nice areas to hold even if I lost money each month in hopes that values in that area would increase. I learned some painful lessons with my flawed strategy. Now I only buy hold properties that will cash flow, period.

It might be a great idea to use hard money to get into a property for little or no money down. Once it is rehabbed and there is a tenant in place you can refinance the hard money into a permanent loan. This form is primarily used for that exact strategy.

Once you have a deal in mind you will need to calculate what your max loan amount can be in order to accomplish the cash flow you need to make the deal work. From there you can work backwards to your offer price. To calculate the max loan, start with the monthly rent. You get this number from a rent analysis that you or a management company you work with will perform. One way to do this is to drive the area and call all the rental signs to see what other people are asking for rent. Keep in mind that this is not a bullet proof formula for success but it is the way I do it. Sometimes people are asking a higher rent amount than they will actually get.

From the monthly rent you need to determine the net operating income by subtracting the following variables: vacancy, maintenance, taxes and insurance. There are a lot of variations to the variables depending on what type of property you are analyzing. For this discussion we are going to be looking at single family detached housing.

Vacancy – you are going to think you are better at keeping your units full than you actually are. Be conservative here. I use between 5-10% of gross rent depending on the neighborhood but sometimes that is even low. Worse areas have higher turnover.

Maintenance – This depends greatly on the type of tenant you end up with. If you sell your homes on a rent to own you might think you will have no maintenance, but I promise you will. If it is a normal tenant in a low income area your maintenance can be quite high. Use 5-10% of gross rent for a good tenant on a rent to own and use 10-15% of gross rent for other tenants. It should not be much higher than that on a single family home.

Taxes and Insurance – These are most likely quoted on an annual basis so simply divide by 12 and use that number.

From the NOI you need to subtract your required cash flow to determine what monthly mortgage payment you are willing to pay.

Monthly Rent ________________

– Vacancy __________________

– Maintenance ________________

– Taxes and Insurance (TI) _______________

= NOI ____________________

– Required cash flow ___________________

= Max principal and interest payment _____________________________

In the past, most loans that I would get were interest only loans so I used a formula using the maximum monthly payment to come up with a maximum loan amount. The formula was to annualize the monthly payment by multiplying by 12 and then dividing by the interest rate. That was the easiest way to do the math. Now it is very difficult to get interest only loans so you should be looking at the math using a standard mortgage. The best way I have found to do this is with loan calculating software. I like this <a href=”http://www.bretwhissel.net/cgi-bin/amortize”>amortization calculator</a> .  To make this work you want to leave the Principal and the balloon fields blank and complete everything else. When you hit the calculate button it will give you the loan amount using the interest rate and monthly payment. Interest rates are changing each day and sometimes several times a day so get an idea from your loan originator what the rates will be and add a little cushion in case rates increase by the time you refinance.

This is where the worksheet stops helping you but you are obviously not done. Print this newsletter and keep it for your reference. From the maximum loan amount subtract closing costs for the refinance which should not exceed 3% of the loan amount. You can have your loan originator help you with this number. The result of subtracting the closing costs leaves you with the hard money loan amount in which you will be refinancing. Ideally you want your hard money loan to cover as much of the deal as possible so you need to subtract the repairs and the closing costs from this number to come up with the offer price:

Maximum Loan ___________________ (from the worksheet)

– Refinance costs _____________________ 2-3% of refinance loan amount

= Hard money loan _______________________

– Repairs ________________________

– Closing cost to buy _________________________ (4% plus $1,500)

= Offer price ______________________________

The final step is to be sure you can get the hard money loan for the amount you are hoping for. You do this by dividing the hard money loan amount from above by 70%. The value of the property needs to exceed this number for the deal to work. For example, if you are hoping for a loan in the amount of $100,000 the value of the property would need to be $143,000. 100,000 / 70% = 143,000.

Often times the deal is strong from a cash flow perspective but there is not enough value to borrow all the acquisition costs in the hard money loan. If this is the case and you decide to move forward based on cash flow potential you will most likely need a down payment for the hard money loan but will not need any additional cash for your refinance. Contact your hard money lender for help with the down payment amount.

It is much more difficult to analyze a deal’s cash flow because there are many more variables and often times two loans. If you are not using hard money it is a little easier but you will need to add your down payment amount to the maximum loan amount from your worksheet to come up with the offer price. Although this can be very confusing, I am confident that you can get comfortable looking at deals this way with practice. Although I might not have time to answer everyone please feel free to ask questions. If I get several questions I may include something in next month’s issue with the most popular questions and my responses. Interest rates are ridiculously low making it is a great time to buy rental property.

Upside Down House

My Top 5 Mistakes As A Real Estate Investor

Mistakes are great because you can learn so much from them. With that said, I would much rather learn from your mistake than mine. I love to talk about mistakes other investors are making so I can help you avoid them. In this article I am actually going to swallow my pride and tell you the top five mistakes I have made during my real estate investing career.

Last year we had an expert panel at our Denver Happy Hour. These are some of the best and most active investors in the area. All of them have done very, very well for themselves. The last question that I asked the panel was “what is the stupidest thing you have done as a real estate investor?” Charles Roberts, one of the current owners of Your Castle Real Estate and long time investor, said his biggest mistake was going over his budget on is first rehab by 600%. He than said he dared the audience to top that. That is pretty bad but check out my dumbest real estate moments:

My first short sale

I was just getting started learning as much as I could. I fell for a sales pitch at one of those seminars where the speakers promote their products. I purchased a short sale product which promised I would be rich in no time. The program taught me to get the seller to sign a deed putting the property in my name before I negotiated with the bank. The seller wanted $3,000 for title to his house so I asked my best friend for $2,000 and I did a cash advance for the $1,000 and I gave the seller the money. My friend and I started to clean up the property while I worked the short sale. Of course the short sale was not as easy as the home study course promised and the bank declined our offer and foreclosed. We obviously lost our time and money and I almost lost a friend.

Not screening a tenant

You may know that I got started in this business by moving out of the first house I owned to keep it as a rental. What you might not know my first tenant in that property is still the worst tenant I ever had. This mistake was before Stephanie was helping me with the business or we may have never gotten married. I was just so excited to have an application for my first rental property that I just approved them with no screening. The result was an ugly eviction, damage to the property and the worst roach infestation that I have ever seen. I had to use a line of credit to turn this property over which took me several years to pay off. I could have easily lost this property because of this mistake.

Goals set by number of houses

It is amazing that I stayed in the business after the first two mistakes but I did and here is what happened next. We are all taught to make goals and do everything we can to reach our goals.  Well that is exactly what Steph and I did early in our career. Our goal was to do at least 12 deals a year. Not necessarily a bad goal but maybe we should have been more clear. Our goal should be 12 GOOD deals a year.

We were so motivated to build a large portfolio betting that they would appreciate that we took on deals with negative cash flow. We hit our goal year after year and were doing ok but you can probably already see where this story goes. I still have properties today that I lose money every month and now I am upside down. It will take years of appreciation if there is any hope of even breaking even (if that is even possible). If I was to sell them today I will lose as much as $50,000 on a single deal. Going forward we only buy for cash flow and don’t bet on things we cant control like appreciation. We also set much smarter goals.

The three year lease purchase

For purposes of this article I would like to separate a lease purchase and a lease option. In my opinion a lease purchase is an agreement where you agree to buy the house while a lease option gives you the right to buy the house or not buy the house. I will never promise to buy a house on a lease option again and I will never do a short term lease option. I think this was our third or forth lease option deal and it appeared to be a good deal with our diligence with one exception. The seller offered decent terms but wanted us to promise to buy the house after three years so that they did not have to pay capital gains taxes on the sale of their home. We agreed.

After three years the house went down in value and would not appraise. This was before appraiser independence so we were allowed to communicate with the appraiser. We promised to purchase this home so I was going to do whatever it took to live up to my obligation. I was able to locate some solid data and I worked with the appraiser to get the value higher enough to get my loan. I did have to purchase it for more than it was worth even with the higher appraisal so Steph and I brought a larger down payment than we should have needed to. After we purchased the home it continued to decline in value and rents went down. By the time the dust settled we lost more than $40,000.

Straw buyer

This might be the dumbest thing we have ever done and I am embarrassed to say might top any of the panelists last month. We had partnered with Chris during our first year as an investor. We flipped a house together where we each made more than $17,000. In fact that $17,000 was my first profitable deal and is probably the reason I stayed in the business after my nightmare tenant and my failed short sale. We trusted Chris and he had proven he can make money in this business.

Several years after our success experience with him he asked us for help. He was hurting for money but we did not know it. He asked us to buy one of his rentals for him for top dollar and deed it back to him. He said he needed to get it off his credit report so he can buy more houses. To compensate us for this favor he paid us $10,000 (which we desperately needed). He had a tenant in place.

Well he stopped making payments on the loan and would not call us back. We started making the payment and collecting rent from the tenant in an effort to save our credit. The tenant got further and further behind but we could not kick him out because we knew the house needed more work than we had reserves to handle. It finally came to where the tenant took advantage of our lenience and stopped making payments completely. We had no choice but to evict.

Once he was out we tried to clean the place up but had no money. We worked on it ourselves but there were major issues. We also tried to do a rent to own as a handyman special since we did not have the money to make the repairs. No one wanted it and we could no longer make the payments. This deal put an amazing amount of strain on my relationship with Steph and we ended up losing that house.

I know that some of these mistakes are so dumb that you would probably never make them. My hope is that by sharing these with you, you can find a way to learn from them and becoming a better investor.