What's the best way to structure a potential buy, fix, hold property as a bird dog?

Question

Hello All,

I have a semi-motivated seller in Summerville, SC, but do to what he owes on the property, there is not enough meat on the bones for a wholesale deal.

Details: 3/2 about 1200 sq. ft. ARV about $85k, asking price $60k, estimated repairs $15k-$20k.  Area rentals about $1100/mth.  Seller will even carry the note for up to 6 months, while the repairs are made and property rented.

I don't have the cash to get the repairs done, or pay closing costs to acquire the property for myself.

I've tried pitching to a few investors that say they buy & hold, but they still want more equity in the property when their done.

What is the minimum equity that most rental investors look for?

What's the best way to structure this so I can pocket a few grand in finder's fees?

Brian

Brian Cate · Answer

@Russ Scheider  @Brian Gibbons

Thank you both very much.  I am trying to understand what is and is not acceptable to investors in our market.  This helps a ton.

It is not free and clear, the seller actually owes $80k, but is willing to take out a personal loan to cover the $20k discrepancy.

There clearly is just not enough meat on the bones to make this one work in any direction.  Back to driving for dollars.

Brian Cate · Answer

For a wholesale deal I figured about $40k max.  I'll let the seller know his options and see what he comes back with.  I have not met any short sale realtors in Charleston, but I'm sure there are a few here somewhere.  I had thought about a subject to deal, but don't have enough knowledge on that yet.  I also didn't know that Summerville was not as hot as other areas.  Seems like a retail sale, priced right, is only on the market about 2 weeks.

Thanks again for the advice.

Mike H. · Answer

Sometimes there just isn't a deal to be had. Just because someone is willing to sell for less than he owes, doesn't mean there's a deal to be had.  In this case, there simply isn't anywhere to go with this unless you can talk his bank into doing a significant short sale.

If the house is worth and it needs 20k in rehab, that means you need to get the bank to accept something around 36k to 45k.

I disagree that an investor won't do a deal unless they can be all in for 70% LTV or better. Typically, thats the case. But if the numbers work, buy and hold investors are more willing to go higher than that.  I'll do 75% if its been awhile since I bought a house or its just a really nice house that will cash flow well and it only means 5k out of my pocket to get it.

Brian Gibbons · Answer

If he owes $80K, he's upside down $20K.

That's a short sale, get him to a short sale realtor.

Russ Scheider · Answer

@Brian Gibbons

Nice creative approach!

I use subject-to sparingly.  Summerville is pretty stable, but not a big-growth area of Charleston like West Ashley or James Island.  I would be more inclined to take on these challenges in a "Hotter" part of our market.

Brian Gibbons · Answer

@Russ Scheider I agree.

@Brian Cate

You may want to do a JV with the seller.

1. Get private money for the rehab, no payments until the re sale.

2. Buy on sub2, you own it, you supervise the rehab.

3. Get $10K as a JV fee

Say you sell for $85 - 20K repairs - $10K JV fee - $8K sales costs

If it is free and clear, Sellers should make more with the JV than with the Wholesale offer.

Russ Scheider · Answer

Hi Brian,

I don't know a single investor (flipper or landlord) who is willing to put his/her money on the line for less than 30% equity (after repairs).  The cash value of the Summerville deal you reference is $32k - $39k.  terms make it a little more attractive, but we all saw 30%+ equity disappear overnight when the bubble burst in 2007, and that makes us cautious.  An investor MIGHT agree to the low $40s with seller financing.  Give me a call if you want some specific examples of local deals getting done. Earlier this week a wholesaler sent me a deal in Goose Creek with $80k ARV, $20k repairs, $32k asking price.  He sold it in one day for $28 cash.  I would have bought it, but didn't get there fast enough.  The deals are out there, we just have to turn over A LOT of rocks.

What's the best way to structure a potential buy, fix, hold property as a bird dog?

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