Is it possible to sell rent to investors for a discount and get all cash upfront?
I recently saw a website called pipe.com which allows monthly recurring revenue companies to sell their monthly revenue to investors for cash upfront and was wondering if any of you members have run into a similar solution for commercial RE. Would be super helpful, as I could expand far faster and take out less debt....
Thanks in advance!
[{"id": "imneni5", "text": "You don't think that's debt?\n\nDid you see the rates \"merchant cash advance\" companies charge?\n\nHow do you plan to service your existing debt that you're now in default on?", "replies": [{"id": "imnfkxs", "text": "Its not debt because you don't owe anyone anything, the investors would just be buying the contract which entitles them to the revenue. Could you please point me in the direction of those companies?", "replies": [{"id": "imnqhf6", "text": "Depending how it\u2019s structured it may not be debt, but factoring companies usually buy at a very steep discount, so I don\u2019t see how this wouldn\u2019t put OP very cash flow negative given how tight cash flow is on most rentals", "replies": [], "depth": 3}, {"id": "imo5xwg", "text": "You owe the tenants to perform your obligations as the landlord under their leases.  You owe taxes and insurance and probably (based on \"less debt\" comment) your existing lender debt service.\nAnd you've just sold the stream of revenue you need to meet these obligations in exchange for a lump sum that you're going to reinvest in more real estate?\nDo you not see how this falls apart very quickly?", "replies": [{"id": "imojhf3", "text": "This is classic Ponzi scheme. It was a popular scam 4-5 years ago in China.\n\nA company would offer 10-20% above market to rent a place for 1-2 years. The rent is paid monthly.\n\nThem they turn around and sublet to tenants and offer 10% discount on rent if they pay the whole year up front.\n\nThey used the short term free cashflow to lease more buildings and in a short amount of time basically took over the rental market for an entire city. They basically cornered the rental market with other people's money.\n\nEventually the whole thing fell apart and screwed a lot of people.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "imng601", "text": "I think I misread this, yes I see that those companies can charge up to 20%, but they should because these are uncollateralised loans, so its a different ball game", "replies": [{"id": "imng9f8", "text": "Correct.  I'm in traditional lending and tangentially into  tokenized real estate. Some of the crypto models are investors acting as lender, owner, debt buyers etc.   Long story short, some of those models include selling the stream of net monthly rents for cash up front based on the CoC AND the appreciated value of the token based on the value of the property (which is a whole ball of wax that I think is being to liberally counted on)  \n\nI've sold MCAs and they're just straight up usury.  merchant cash advances  20% is being nice.", "replies": [{"id": "imngumf", "text": "Appreciate your response. Haven't dipped into tokenised real estate and I fundamentally believe that property probably shouldn't be on a blockchain as you have to constantly change hands which doesn't make a whole lotta sense. But that sounds super complex and unwieldy, but appreciate your response!\n\n&amp;#x200B;\n\nOk let me play devils advocate. As a landlord that has 100k in annual rent over a 5 year lease; if an investor offered you 460k and deposited that all in your account the next day would you take this deal? That would be an 8% discount, or an effective 8%pa interest rate. You would have no personal guarantee either", "replies": [{"id": "imnhxsu", "text": "How do you pay for monthly debt service?", "replies": [{"id": "imnigt1", "text": "this is for you to work out I guess? Im just wondering if there was a similar product, not promoting this product", "replies": [{"id": "imnj517", "text": "Sounds like a terrible idea. If you want the money now, sell the building.", "replies": [], "depth": 7}, {"id": "imnjsp1", "text": "\u201cthis is for you to work out I guess? \u201c\nAnd how do you think your Leander, which I GUARANTEE you has an assignment of rents clause in their loan, would feel about that? They have your building As well as lease income as collateral. I\u2019m guessing the funding company has a clause that \u201cyou get to work that out\u201d too. Use google. Plenty of outfits will gladly rob you blind.", "replies": [], "depth": 7}, {"id": "imnk1ee", "text": "I think your bank might have a problem with it.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}, {"id": "imo3ual", "text": "Given inflation an 8% discount probably isn't enough, and if there is no guarantee then the discount should be even higher.\n\nWhat happens if vacancy increased? Or a massive fire that prevents you from collecting rent? Is the investor just out of luck?", "replies": [], "depth": 5}], "depth": 4}, {"id": "imqk1hl", "text": "what's your thoughts on lofty.ai?", "replies": [{"id": "imqlg55", "text": "I'm reading the docs very closely.  And banking on the appreciation is going to be a shit show.  And they oversell the tokens to have a big impound and cover rents with it when they don't collect them, which doesn't seem uncommon for them to pay, which has a ponzi feel to it.    And the monthly AVMs they get are supposed to recalculate the price of the token, but ?it doesn't??  And on the HUDs, there are sometimes big deposits, that I'm not sure where they came from......  I like the idea though......  I have to audit the algorand contracts next.", "replies": [{"id": "imv2xjd", "text": "Thanks, I appreciate your thoughts. I've been wary of investing more than a couple bucks into it but I will say so far it's been a pleasant user experience but I will keep my skepticism up.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "imnjd0s", "text": "While equipment lease factoring is a thing and I was able to find a couple of references to real estate lease factoring in Asia, it does not appear (at first glance, anyway) that real estate lease factoring is a thing in the US.\n\nI found some interesting discussion on the subject [here](https://www.biggerpockets.com/forums/50/topics/51355-can-i-factor-an-apartment-complex-).", "replies": [{"id": "imnkg04", "text": "&gt;here\n\nThank you for the only non cynical answer", "replies": [], "depth": 2}], "depth": 1}, {"id": "imnmhbx", "text": "That sounds like debt and I would avoid this type of strategy", "replies": [], "depth": 1}, {"id": "imnq3vo", "text": "If you have a mortgage on the property, most lenders prohibit \"anticipating\" rental payments...", "replies": [], "depth": 1}, {"id": "imns281", "text": "This is called getting a 2nd mortgage from the bank.", "replies": [], "depth": 1}, {"id": "imnwrg6", "text": "Call J.G. Wentworth", "replies": [], "depth": 1}, {"id": "imo2w9y", "text": "Refinancing or selling the building. It's that simple, no secrets there sorry.", "replies": [], "depth": 1}, {"id": "imo3r9n", "text": "That\u2019s what happens when you get a mortgage. One of the documents is an Assignment of Leases and Rents - it\u2019s part of the collateral you\u2019re giving the lender in exchange for the cash up front.", "replies": [], "depth": 1}, {"id": "imo4z2g", "text": "Yes - institutional investors buy lease revenue all the time. They focus on good credit tenants (Starbucks, Chipotle, etc) and buy those income streams for a discount. Let's the landlord monetize the rent up front and gives the institutional investor a solid return, too. Win-win.", "replies": [{"id": "imq61jm", "text": "&gt;Yes - institutional investors buy lease revenue all the time. They focus on good credit tenants (Starbucks, Chipotle, etc) and buy those income streams for a discount. Let's the landlord monetize the rent up front and gives the institutional investor a solid return, too. Win-win.\n\nCould you please point me to where this occurring, or is this more over the counter deals. I thought it was win-win too, I am only in big commercial spaces like those you mentioned so it makes sense to do it and means I need to dilute myself less if I need to get investors etc. Appreciate your response.", "replies": [], "depth": 2}], "depth": 1}, {"id": "imo5mxr", "text": "So basically a sale-leaseback?", "replies": [], "depth": 1}, {"id": "imoar5z", "text": "Mate. That *is* debt.", "replies": [], "depth": 1}, {"id": "impbdeg", "text": "It might be interesting. Do you have first lien debt on the property currently? It would be debt, just the hard money version. \n\nIt's shark $$ and could make for more flexibility and payoff without penalty, etc.", "replies": [], "depth": 1}]