BiggerPockets

I have a few REO`s that I`m looking into.I`m having a very hard time finding anyone to lend me the money I need to get these deals done.I don`t really want to do a Hard Money loan,but I will if I have no choice.I`m looking more for a joint venture/silent partner type thing.You provide the funding,I do all the work and we agree on a percentage split of the profits.I am not looking to hold the property,especially my first deal.If anyone can help me out please let me know.Thank You

Robert Miller

I don`t have a particular deal lined up yet.I`d like to know I have the funding before I put in the offer.No one that I know has the money to lend me.

Here`s some details on one of the deals I`m interested in:

4 Beds
2 Baths
2700 Sq.Ft.
3 Stories
Purchase Price:$35,000
ARV:$230,000
Estimated Repairs:$82,182
(I`m going to get a couple more estimates before I purchase it)

Thanks

Robert. I'd be quite honest with you. Properties like this one that truly have a $230,000 ARV rarely stay on the market with selling price of $35,000 even with an estimated $82,182 which by the way this is one of the most precise estimate I've ever seen (I wonder what will the last $182.00 pay for??? :D )

It is a huge profit margin (Based on what you are giving us here) that would make a property like this disappear quickly. Do you know how long that property is on the market?

I would have to question the ARV first. How did you arrive at that number?
Your repair estimate - what specific items are in it?
How long to repair?
If you are really all-in for under $120k and the ARV is $230k, I am listening!

the $230k ARV is from my Realtor.She did a CMA for me.She said it would sell for $217k,but she would add value because it`s so close to the college,so that`s where the $230k ARV comes from.I do have a detailed written estimate on all repairs my contractor will do,total rehab time is 5 weeks.The bank accepted my offer on this property last month,but I couldn`t find a buyer fast enough to come up with the earnest money.If you`re interested send me a PM with your email and I`ll send you the written estimate.I`m going to have another realtor do another CMA for me so I can be sure it would sell for $230k or atleast $200k.

A hard money lender will be MUCH cheaper than a equity partner. Assuming your numbers are correct, your purchase plus rehab cost is $120K (rounding up a bit). ARV is $230K. You'll have buy, holding, and selling costs of maybe $2000, $2000, and $23,000 respectivally. That leaves potential profit of $83K. An equity partner will want a 50/50 split. So, that's $41.5K each.

Now, if you borrow 60% of ARV, or $138K, and pay four points and 15%, you'll pay about $5400 off the top leaving you with $132.6K. You'll pay the buy closing costs, holding costs, purchase and rehab, leaving $8,600. You'll be making monthly interest payments of $1725. If it takes six months to sell, your payment will total $10,350, so you'll need to scrape up about $2000 of your own cash. You sell for $230K with $23K in closing costs, netting you $207K. You pay back the $138K loan, and you have 69K, less the $2000 you had to scrape up and your profit is $67K. Beats the heck out of $41.5K.

Now, you're taking more risk. Because if these rather unbelievable numbers don't pan out, then you would either have to come up with more cash (if more work is needed) or not make as much profit (if it sells for less).

A HML aslo provides an independent check. They will insist on an independent appraisal. I suspect your CMAs are coming from the same broker who is trying to sell you the property. So, those CMAs are suspect. In many areas, its still possible to find comps that will support a higher value. On my last deal, I could have cherry picked three comps and supported a value of about $160K. OTOH, I could also find comps that would support a value more like $120K. Big difference. If you're broker is picking those high comps, you're going to be hurt because the eventual buyer's appraise will pick those low comps. You MUST learn to determine the value yourself. Or, if you cannot, you MUST use an independent source, not one that has a vested interest in the deal.

If you want to check that $230K value, tell the broker you will list it with her for that value on a 90 day listing. But if it sells for less than 95% of that value, she gets no commission. If it sells for less than 90% of the value, she gets no commission and pays the buyer's agents commission. If it doesn't sell in 90 days, you relist with another agent, and she pays all the commissions. If she truly believes $230K is a good value, this deal is find because she'll get all her normal commissions.

Robert, ARVs THE single most essential piece of data. This is something you MUST learn to do for yourself. It matters more to you than anyone else. There are several threads on "how to get ARV". Mostly it involves learning the area inside and out, looking at as many houses as possible, and monitoring the actual sales in the area very closely. You should not be asking for CMAs from these agents. You should be asking for comps for the area. ALL comps, not just a few. You really must get as good at doing this as any agent.

Its good these agents are independent of the purchase transaction. Just tell them you want the value they would use for the listing that will generate a contract within 90 days. Tell them they will get only a 90 day listing.

Ok the original numbers were off. My agent did a new CMA and she could resell it for $176,500.So after purchase and repairs we`d be getting it at 32% below ARV.If you want the link to the CMA,PM me and I`ll send it to you.I can also email you the Written work estimate if you want it.Thank you.

This was a good post guys.Learned alot here,,,

Yeah using the strategy that Jon gave me to get the correct ARV works.I will definitly be using it from now on with all the agents I get CMA`s from.