Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
Over the last several months I've spent a significant amount of time reading books, BP forums and almost anything I could get my hands on, to prep myself for my Real Estate journey.
I've finally lined up a hard money lender that is willing to work with me on doing a flip in the north Chicago suburbs. They are requesting that we do the deal and split all profit 60/40. They get the 40. They are willing to lend me up to $80K with cost of rehab included.
I have a great real estate agent lined up and have several options for RE attorneys.
Does anyone have any recommendations or insight on doing a deal like this?
Real Estate Investor · Los Angeles, CA · Member since 2011 · 31 posts · 13 votes
12y
Sounds like that might have been a good thing though. You certainly seemed to be concerned that you were overpaying, might not make much money, and have a bathroom count that may be difficult to sell. I know you get anxious to do your first deal you want to jump at something and get going, but don't talk yourself into deals that don't seem like wins. You'll regret it.
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
12y
Hi everyone,
I figured I'd send an update, no luck finding a deal just yet. We've made offers on 5 more properties since my last post, no luck. The inventory in the area has pretty much dried up. I'm looking at 1 house a week if I get lucky. Plus prices rose so high that most buyers just stopped looking. For example, a house that would have listed for $180K last year, was listed a month ago at $234,500.
Now that the school year has started, I'm seeing the prices on houses start to stagnate and maybe drop. I'll keep looking into the fall and winter months hopefully I'll be able to pick up a property or two in the next 3-6 months.
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
11y
Just got my first offer accepted! Waiting for the bank to accept the final contract. The property is a nice ranch style house. 5BD, 3BA in an area that's about 20-30 minutes northwest of where I've been looking.
I have a stupid question because im a Super Dooper Newbie. What happens if you cant pay the lender back. because I read that @Nick Wing said that there is no risk (money wise). What if you cant sell the house for a high enough of a price and you dont make the money you spent in rehabbing back ?
I have a stupid question because im a Super Dooper Newbie. What happens if you cant pay the lender back. because I read that @Nick Wing said that there is no risk (money wise). What if you cant sell the house for a high enough of a price and you dont make the money you spent in rehabbing back ?
Because it is structured similar to a partnership, the Flipper (in this case Roman) and the Lender, would have agreed to all costs prior to the project taking place. The money for the purchase would likely be released to Roman at the close of the Purchase, and the rest of the money for the repairs would be released as Roman completed each phase of the rehab. In our program he would have to use his own money initially for the repairs, however would be reimbursed as repairs were completed. When 25% of the rehab is complete and verified, the lender would release 25% of money set aside from the rehab budget back to Roman. The way we work, once the property has been completely rehabbed and listed, the borrower should have none of their own money invested the project anymore.
If the property is unable to sell within an agreed time frame or for the estimated resale value, there can be various things that may happen. Lenders should have already planned in case a project does not work out and each will have its own way of recovering their investment. Depending on the agreement things like profit split may change, or the lender may just take over the project completely.
This is a general way of how we work, I cannot speak for all private lenders There are many other ways that these partnerships and loans can be structured.
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
11y
@Nick Wing is absolutely correct. That's how most rehabbers work. However, my situation is different as I have negotiated my terms with my partner that way. I have little money to put towards this project, so our agreement is that I put in the ernest money ($5000) to secure the contract, and pay any associated fees. This way my partner/lender is not on the hook until the property actually closes. Once the property is ours, we have an agreement that my partner pays 10% when we sign paperwork with our GC, 20% increments as the various phases of the project are complete and the final 10% once we do the final walk-through.
So in my case, my lender is cutting checks directly to the GC once they verify that a phase is complete.
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
11y
UPDATE:
Our first accepted contract has been cancelled! I was buying the property as-is and after looking at it with my agent, I wasn't sure if it made any sense to pay for an inspection. Luckily, I decided not to be a cheap *** and paid the $300.
The home inspector I used had many years of experience and grew up in the industry as his father owned an inspection business that did home inspections for 6 major banks. Long story short, he provided his inspection results which revealed several major problems with the property that we did not immediately identify and probably never would have without his expertise.
What looked like a good roof turned out to be covered in improper patches and soft spots, the attic had improper structural supports that held up a section of the roof, and we found out that our 5BD, 3BA house started its life as a 2BD, 1BA, and thanks to two very well concealed additions had grown to be a decent sized house. Furthermore, there was no A/C although a condenser was sitting outside, there were two furnaces, neither one of which worked, and a mess of DIY electrical and structural projects throughout the property.
In short, the $300 inspection revealed a rehab budget that would have been more than double the expected amount, and had we not gotten a trusted and experienced inspector would not have found these issues until after closing.
Needless to say we bailed out of the deal and are now on the hunt for the next property. My story here just goes to show how important it is to do home inspections, even if you think you've seen it all.
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
11y
UPDATE:
Wanted to update anyone that is actually following this post. In December I closed on my first rehab property in Arlington Heights, IL. 4BD, 2BA 1800 Sq. Ft. within walking distance to downtown Arlington Heights (a great location).
The design plans have been created, contractor quotes have been reviewed and work is scheduled to begin next week. There's not a room in the house that we aren't improving, and we are even adding a full bath. Excited to see what's in store.
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
11y
First week and a boat load of problems. As I mentioned in my previous update. We closed on the house in December. The 19th to be exact. Now, just over a month later, no work has been done on the house yet. These past couple of weeks have been difficult, my contractor fell from a ladder (not at my job) the day after my last post and spent two days in the hospital. We had to get a different electrician to come quote the job, because the original one was MIA, no idea what happened, and yesterday I found out that the plumber for the job was in a car accident, so now we need someone else to fill out the permit paperwork. Until that's done, we're sitting on our hands. Feeling real frustrated at this point. 1 month in and no work is done.
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
11y
UPDATE:
Work is in full swing. Walls have been opened, flooring has been ripped out and is being replaced. Electricians are almost done and plumbers are working away as well.
Here's a few unexpected things that came up.
First, the electricians found that the wiring throughout the house needed to be redone, it was the braided style from 1949 when the house was built. That needed to go (extra $550)
Since we're adding a full bathroom upstairs we had to demolish two back to back closets, and create the new bath. The plumbers discovered that the piping throughout the house was insufficient for 3 baths, so all of it needs to be redone. (extra $2200).
The floors between the kitchen, living room and mud room were about 3 inches thick due to multiple layers of 1/4" plywood and vinyl flooring. That needed to get ripped out and leveled (extra $400)
South Richmond Hill, NY · Member since 2015 · 18 posts · 4 votes
11y
For the flipping, do individuals usually do all of the handy work themselves or work with home/construction companies to "build it up" and then sell it for a higher price? I can't possibly think that most people are able to do most of this work themselves. I ask since a couple of my friends have been doing this but they are doing around a deal a year at this rate because of the time they spend on the property itself.
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
11y
@Prince Singh What you're talking about is more of a live-in flip. When people live in a house they are flipping themselves. Most experienced flippers/rehabbers use a contractor to do the work. A contractor and their crew can finish a house in a few weeks versus a year. It costs more, but you save money not having to pay the mortgage for a year.
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
11y
UPDATE:
Things are starting to come together. The plumbing is done, although it delayed us by more than a week. The tiles are going in now, the drywall is up everywhere and the taping & mud is going up today. Things are moving closer to the finish line but have been behind schedule since the first week. That may not be such a bad thing as the weather in Chicago has been very windy and cold for the last several weeks with frequent dustings of snow. I'm thinking that even if the house was done already it would sit a bit longer on the market with this kind of weather.
Found out that they can't do the concrete work until the temps rise to at least 40 degrees, which means I will need to do one of two things either issue a credit at closing or take care of it for the new owners when the weather is warmer.
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
11y
UPDATE:
Lots of things have happened since the last update. The new bathroom was dormered out, plumbing was installed, granite coutertops went in, tile went in. The entire house has been taped and mudded, painter has come through for primer and first coat of paint, and today the floors are being done. Here are a few pics.
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
11y
UPDATE:
Got a signed contract in place today. The remainder of the flip went relatively smoothly, took a bit longer than expected to finish the little details, caulk, paint touch ups, etc. From start to finish this project has taken a little over 5 months. I'm attaching a few pics to show the house now that all renovations are complete.
After all is said and done, it looks like I'm going to clear approx. $51K on this project. Not bad for a first deal, if I do say so myself. :)
Looks great! I like the open floor space in the living/dining, floor, and choice of tiles and granite and the overall kitchen. Did you choose those or did the contractor? How much was your total rehab costs?
I am working my way to my second rehab, but first flip (rehabbed my current home- 2 flat a little over a year ago. Don't plan to ever sell this one , it will be my first long term hold). I am working on getting my financing in place and will soon be looking for a property to flip in Chicago. Thanks for all the updates in this post, really enjoyed reading/following along!