BiggerPockets

err this guy wants his cake and eat it too.... it seems all he will be doing is GC.... which unless he is the best contractor ever, doesnt mean much... i mean you even said he is slow to work sometimes. which is not good at all.

tell him is he is serious he should put his own money in, if he cant, then have him bring you deals. if he can bring you good deals than use your cash to finance the deal, pay for materials only and when the house sells give him 30% after splitting all the rehab costs with him.

i havent done my first deal yet. but i have been burned in the past with partners with no equity. my suggestion is to stay away, unless he does truly bring you some good deals. then work with him. he needs you to fund the deal as much as you need him to get the house ready.

Steve with friends like that who needs enemies !

That is about the worst deal I have ever heard of in my life !

So he wants you to buy the place,pay for parts,shell out 3,000 a week in labor,and then get 30%.

No wonder this guys business is slow.His financial problems are not yours. As far as finding property with carpet and paint only it will be tough as home buyers compete for those properties too.The home buyers are happy to live in it and get small equity say 10k where you can't do that on your flip plus it's easy for them to get a loan to purchase a property with minimal work.

With cash you need to look at properties needing a bunch of work.Try to find the most run down property in a great area.Buy it cheap for cash and fix it up to sell.

If you don't want to take yourself away from your main business you already have you might look at wholesaling properties to start.Less risk just getting started and you can learn the ropes.

You can use hard money for flips to preserve cash but the hard money takes high interest and points and only gives money for repairs in draw schedules so it drags out your rehab and resale which costs more money with your loan.

You could focus instead of whole tailing.Fix the property us some and sell to an investor for cash with a small markup.Since they have cash there will be no loan red tape with a retail buyer.Less margins but more volume.

Hope it helps.

I'm with the others. The guy wants to get paid and paid weekly and wants to get a share of the profit? No way. He's simply the general contractor (licensed, I assume). He gets paid as such.

Have him bid the entire job. And get at least two other sets of bids. A small up front payment ($0 would be good), then progress payments as the work progresses. Hourly rates are guaranteed to cause you problems.

Now a "money partner" arrangement isn't unusual. That's where the rehabber finds the house, gets all the work done, and then sells the house. The rehabber does ALL the work. The money partner puts in ALL the money. The rehabber DOES NOT get paid anything until the house sells, and does not get paid for his labor at all. If he hires subs, they can get paid. A typical split would be 50/50 of the net proceeds.

Alternatively, the money partner could just do it as a loan. The rehabber buys the house using money from the money guy. As the work progresses, the rehabber gets draws from the money guy to reimburse him for the work that has been completed. Once the house sells, the money partner gets paid off. The rehabber keeps the difference, or makes up the shortage if the deal goes south. If the deal really goes south, the money partner takes back the house.

A rule of thumb is that if the purchase and rehab costs are 70% of your eventual selling price, the profit will be 10-15% of that selling price. That assume six months of money borrowed at hard money rates, which would cost about 7% of the selling price (assumes 4 points, 15% interest only, and a loan of 70% of the selling price.) So, neglecting the money costs, you're looking at a profit of 20% of $190K, assuming you can buy and rehab for $133K. That's about $38K profit. If you buy for $150 and spent $5K on lipstick, you've just given up $22K of your $38K profit, leaving only about $16K. If you want to do deals like that, you really don't need your friend. But, as Joel explains, you'll probably have better luck with houses that need more extensive work.

I concur with all the others. You need to slap this guy or pour a bucket of water over him, he is DREAMING!

Why not just have him bid each job and pay him for the construction work? You keep 100% of the profits and he gets some work! Win, Win.

As to your comment of wanting to go after the deals that just need paint, carpet, etc., be advised that these deals are often not deals at all (if on the MLS) as they qualify for end buyers to purchase them. These buyers are willing to pay full list price at times and also at retail price points, which drive the price up. An investor just can't compete with an end buyer.

As such, I recommend you go after the deals that have something wrong with them that make the property not financeable for conventional or FHA financing. (Example would be a gutted kitchen or a home without a furnace) These deals can only be purchased by an investor and limit the competition. You will often find the best deals on the MLS that are these types of properties.

Everything that has been said about the numbers is true. They don't work out for you. There's nothing else that needs to be said.

Let me address something else about this - your contractor 'buddy' is trying to set you up with a deal that is heavily in his favor, with an open-ended contract that will pay him in perpetuity on a weekly basis... with the kind of rates I'd expect to pay only for highly-skilled Ninja bosses each with their own crew to run. Maybe labor costs different in Atlanta, though.

Anyway, my point is this - don't work with someone that you aren't wholly, 100% willing and able to fire at the end of the day. A contractor 'buddy' setting you up like that is someone you will have to fire eventually, and it will get ugly when you do it.

I'd go even further and say that trying to renegotiate his terms will be a waste of your time. He won't like it and he won't give you his best work if you try to make him work for more reasonable terms.

Best idea: find another contractor to work with and evaluate him like any other employee. Dealing with your contractor 'buddy' is going to bring you never-ending pain and sorrow... and a lot of lost profit.

worst friend ever!

Now that you are on our page, the next step is building your team and finding the right deal. To find the right deal, you must know the numbers of a good deal. So learn all there is regarding exit values, rehab costs, selling costs, and holding costs. Without knowing them, you have no way of knowing what to pay for any one property.

Ok so was talking with the gf tonight we def agree with everyone here. As far as the plan goes right now I am attending some auctions in my area to get an idea of what properties sell for as well as checking out lots of houses on mls in the same area to better my idea on pricing. Met up with a real estate guy who flips houses on the side. Made a handshake deal with him I would use him to list a property when it sells in return he will help me find something that the numbers work. Hes finding me comps on all the auction properties before I go so I feel like I am off to a better start. I am looking for something that is not financeable (sp?) through a conventional loan.

As far as the repairs I think I am just going to make them myself. I know a few people who also renovate houses and they turned me on to some cheap guys who they said were good and work was slow. So I am building my contacts at the moment. Before I buy I want to spend the next few weeks making contacts and learning property values inside and out.

As far as construction and repair costs what do you guys recommend me to do. Learn them or have bids put in to me before I make the offer where possible.

Originally posted by Steve S.:
Met up with a real estate guy who flips houses on the side. Made a handshake deal with him I would use him to list a property when it sells in return he will help me find something that the numbers work.

Okay, I'm just going throw out something that you might want to keep in the back of your mind here...

I work with a lot of investors, and there two investors who I do everything from being their buyers agent, managing their rehabs, staging, and being their listing agent. But, as a rehabber myself, it is very rare that I will find deals for these investors (there's only one I'll find deals for, and that's because I'm good friends with him).

The reason for this is that because I'm a rehabber, I have little incentive to pass on deals to other investors -- basically, I'm giving them deals instead of doing them myself. Any time a rehabber passes you a deal instead of doing it himself, you need to ask yourself why he would do that? The most likely response is that it's not a great deal...he'd rather you take the risk while he get the commission and doesn't need to worry about the deal being a bad one.

So, just be wary any time a rehabbed says, "here's a deal for you that I'm not doing myself."

Originally posted by @J Scott:

Originally posted by Steve S.:
Met up with a real estate guy who flips houses on the side. Made a handshake deal with him I would use him to list a property when it sells in return he will help me find something that the numbers work.

Okay, I'm just going throw out something that you might want to keep in the back of your mind here...

I work with a lot of investors, and there two investors who I do everything from being their buyers agent, managing their rehabs, staging, and being their listing agent. But, as a rehabber myself, it is very rare that I will find deals for these investors (there's only one I'll find deals for, and that's because I'm good friends with him).

The reason for this is that because I'm a rehabber, I have little incentive to pass on deals to other investors -- basically, I'm giving them deals instead of doing them myself. Any time a rehabber passes you a deal instead of doing it himself, you need to ask yourself why he would do that? The most likely response is that it's not a great deal...he'd rather you take the risk while he get the commission and doesn't need to worry about the deal being a bad one.

So, just be wary any time a rehabbed says, "here's a deal for you that I'm not doing myself."

J Scott, you are on the money. The exception to that might be if the rehabber who is wholesaling the deal is over-extended, either financially or time-wise.

Another point for you, Steve S., is that a realtor who is looking for a commission when you sell, is also likely to overstate the ARV when he brings you a deal to buy. I talk to newbie investors every day who call me with a deal they want me to fund, and state the ARV of the property according to their realtor. 99% of the time it is overstated, and the newbie investor vehemently defends the realtor. Until I pull the comps 1/10th mile away that the realtor conveniently skipped over when pulling comps to support the ARV he proposed.

Your guy may not be any of the above, but then again, he may be.