Met an attorney this week who can only be described this way, sorry to say: A know-it-all-know-nothing

Main Street Makeovers

He must have received his law degree in the snail-mail. The guy didn’t know the difference between foreclosure and power-of-sale.

Why is this even important?

Foreclosure versus Power of Sale

Because I advise a number of funds (REITs, MICs, Private Equity Funds, Mortgage Trusts, Mutual Fund Trusts, individual private lenders such as family offices), I always suggest a few things to them:

1. Don’t lend or invest any money in projects you wouldn’t want to own yourself (if you had to)
2. Only lend to entrepreneurs you like and trust
3. Always include both POS and foreclosure provisions in every loan and investment
4. Define the business strategy in a way that differentiates you from all the other funds
5. Don’t bother with a 45-page business plan that no one ever reads, create a spellbinding (12 to 15 slide) slide deck instead, and then go out and raise $$$ from accredited investors $150,000+ at a time or (preferably) big institutions at $10 million + at a time
6. Remember you are appealing to investors’ reptilian brains that like simple, non-threatening, exciting stuff not arcane charts, graphs, and wordiness

Foreclosure is the main proceeding in the matter of a loan default in the US, power of sale in Canada. I am not a lawyer (just a lowly engineer) so I can’t provide any legal advice or opinions, but my take on this power of sale versus foreclosure thing is this —

1. The worst time to sell a property is when it is in trouble
2. Under POS, you (the lender) have to hire an agent who MUST put it on mls or another widely viewed marketing channel so as to gain maximum exposure for the property
3. You must disclose that it is a POS situation immediately stigmatizing the property and attracting an untold number of vulture investors who will lowball you
4. When you sell it, any overage (anything above your mortgage and legal costs) must go to the original ownership

If you use a foreclosure proceeding instead, you apply to the courts, get the title switched to your name, put in place your own property manager, fix all the issues and run it yourself.

Then you can decide if you want to sell it or keep it or when to sell it or refinance it.

Private equity behemoth Blackstone Group did exactly that:

When the credit crunch struck in 2008 and created a tidal wave of foreclosures across the United States, private equity giant Blackstone Group was among a number of Wall Street firms that saw an opportunity to bet on an eventual housing recovery. The firm, under the guidance of its billionaire head of real estate Jonathan Gray, created a company called Invitation Homes in 2012 that spent an estimated $9.6 billion dollars scooping up thousands of properties nationwide and turning them into rentals.

Notice they foreclosed on the properties. Then they set up their own subsidiary (Invitation Homes), a “vertically integrated, scalable company with in-house capabilities of acquiring, renovating, leasing, maintaining, and managing single-family homes.”

By 2017, Blackstone successfully IPO’d Invitation Homes, a kind of exit without exiting strategy since they still control the company and own a lot of its equity…

None of this would have been possible under a POS scenario, vaporizing a ton of Blackstone’s upside and most of its subsequent and abundant fees.

Another big downside of POS is that the original owner in default has the right to cure the default (if s/he can source new funding) right up to about an hour before completion so if you buys a building under a power of sale notice, you are never sure you are going to end up with it until you do.

But there’s a flip side… taking advantage of Power of Sale situations

The flip side is, if you are a buyer, you can take advantage big time of sellers. Lenders aren’t generally knowledgeable about anything other than mortgage lending. They know practically nothing about real estate, its management, animation strategies, renovations, proper leasing, etc.

I can prove it to you. My wife and I recently bought a 3-story building on a main street in a booming small town in Ontario under POS for $280,500. It’s about 12,000 sq ft of built space above grade, meaning it cost about $23.38 per sq ft. You can’t build a doghouse or outhouse for that (about $40). Mind you it needs a lot of TLC.

Our three-story building

And the lender almost certainly took a (financial) bath. They had to eat all kinds of legal fees, remit tens of thousands of dollars of unpaid property taxes to the town, pay old utility bills, write-off unpaid interest, and compensate their realtor as well.

This project and model is something I call Main Street Makeovers; basically, it’s about buying property inexpensively in small towns within an hour or two of larger centers, then fixing them up so they appeal to young people looking for greener pastures where they can walk everywhere and older folks looking for a new adventure and a lower cost of living… After having the project reappraised, you can remortgage it, take funds out tax-free, and rinse and repeat the process. If you do multiple buildings in the same town, you create a situation where the tide raises all boats, yours most of all.

Prof Bruce

FOR REAL ESTATE INVESTMENT AND BUSINESS COACHING THAT’LL HELP YOU PROVIDE FOR YOURSELF AND YOUR FAMILY FOR 3-GENERATIONS, PLEASE CONTACT:

Bruce M Firestone, B Eng (civil), M Eng-Sci, PhD
Real Estate Investment and Business coach
Century 21 Explorer Realty Inc broker
Ottawa Senators founder
613–762–8884
bruce.firestone@century21.ca
brucemfirestone.com
https://www.linkedin.com/in/profbruce
https://brucemfirestone.com/blog/
profbruce.tumblr.com/archive
https://www.youtube.com/user/ProfBruce/
https://twitter.com/ProfBruce
https://www.facebook.com/groups/reiroi
https://www.facebook.com/ProfBruce
https://bruce-firestone.c21.ca/

BOOK YOUR FREE CLARITY CALL WITH PROF BRUCE NOW, https://brucemfirestone.com/coaching/prof-bruce-real-estate-investment-and-business-coaching/talk/

• MAKING IMPOSSIBLE POSSIBLE
• FREEDOM VIA REAL ESTATE INVESTMENT AND PB4L, PERSONAL BUSINESS FOR LIFE
• FEHAJ, FOR EVERY HOME A JOB, FEJAH, FOR EVERY JOB A HOME
• MAKE YOUR HOME WORK FOR YOU, INSTEAD OF YOU WORKING FOR IT
• HIGHER ROI NOT JUST FOR OWNERS AND INVESTORS, BUT FOR TENANTS, GUESTS, VISITORS, NEIGHBORHOODS, COMMUNITIES, TOWNS, VILLAGES, CITIES AND THE ENVIRONMENT TOO