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J Scott - Author of Flipping/Estimating Book - Ask Me Anything!
Hey everyone!
First, thank you so much for all the support after my recent Podcast episode and the recent BiggerPockets release of the 2nd Editions of The Book on Flipping Houses and The Book on Estimating Rehab Costs. I've gotten a tremendous amount of email and private messages with the kindest of words, and I sincerely appreciate it.
Unfortunately, there's been so many emails and messages that I haven't had the ability to respond to everyone, despite my best attempts. Many of them contained questions -- and I hate not being able to respond to all the questions I get! So, I wanted to start a thread to give everyone an opportunity to ask questions -- and since I get many of the same questions over and over, I thought this might be a good resource for future questions I may get.
Anyway, if you have any questions about the Flipping/Estimating books, about any aspects of real estate strategies, about investing in general, about running a real estate business (or any business), etc., I'm happy to do my best to answer.
There are a lot of tremendously knowledgeable people on this forum, so don't post here if you have a question best answered by the whole community.
But, if you want to address something specifically towards me, this is the place! Feel free to post in this thread and I'll do my best to respond to everyone!
Also note that I created this thread a few years back -- might be worth checking first to see if I've answered it there:
I started looking into personal lines of credit after listening to show 311. Would this hurt my ability to obtain a mortgage? Someone told me this is the case, but after researching it it sounds like it is a myth. Thank you!
Originally posted by @Beau Kemp:
I started looking into personal lines of credit after listening to show 311. Would this hurt my ability to obtain a mortgage? Someone told me this is the case, but after researching it it sounds like it is a myth. Thank you!
Any time you have a hard credit inquiry or open a new line of credit, it can have an effect on your credit score. If your score is borderline, you should probably think about what credit is most important to you, and go after that first. If your score isn't borderline, I doubt that opening a LOC would substantially change that.
All that said, this isn't my area of expertise...just my experience...
Originally posted by @Bjorn Ahlblad:
@Paul Strauss Thanks Paul, so that would be 20k plus tax as an estimate that is a fine starting point for evaluating quotes. Thanks for your help. @J Scott I hope we are not hijacking your thread too much!
Apologies if we are (hijacking the thread)- yes- you would have to ADD TAX and as I said- there are variables which I can't know without an inspection.
Hi J Scott,
I was told to call realtors, attorneys and cpa’s to ask them for leads. Is their a group of people I am missing and should I be saying anything specific?
Also I live here in Houston and I’m from California. I really want to start a “ Texas Buyers Club” of out of state investors. Because I feel they pass up on good deals out here too easily.
For example. I saw a house for 100k from a wholesaler (who went down to 97k after I walked.) The comps support 169k great neighbor and school rents $1500 average repairs 45k on the high side. Couldn’t I have used private money long term bought it and fixed it and sold it for 20% down and create a mortgage a few points higher than the private money loan. So something like this?
Purchase 150k @9% 30 yrs
Owner financed buyer 20% down and 12% interest 30 years?
Am I missing something?
Originally posted by @Nia Dennis:
Hi J Scott,
I was told to call realtors, attorneys and cpa’s to ask them for leads. Is their a group of people I am missing and should I be saying anything specific?
Also I live here in Houston and I’m from California. I really want to start a “ Texas Buyers Club” of out of state investors. Because I feel they pass up on good deals out here too easily.
For example. I saw a house for 100k from a wholesaler (who went down to 97k after I walked.) The comps support 169k great neighbor and school rents $1500 average repairs 45k on the high side. Couldn’t I have used private money long term bought it and fixed it and sold it for 20% down and create a mortgage a few points higher than the private money loan. So something like this?
Purchase 150k @9% 30 yrs
Owner financed buyer 20% down and 12% interest 30 years?
Am I missing something?
A few holes in this idea:
- I don't know where to find fully amortized 30 year loans for properties you plan to flip.
- You're not accounting for any down payment on that $150,000 you're borrowing.
- You're not factoring in fixed costs -- purchase costs, holding costs, selling costs into your numbers.
- With Dodd-Frank, selling with owner financing to a homeowner can be very difficult.
In general, buying, fixing and selling with owner financing can work, but your numbers need to be better, and you should focus on finding investors to sell to. Also, you need a reliable source of funds to get these done.
Originally posted by @Luis Zuniga:
Hi @J Scott, I'm a complete newbie here.
One thing I was interested in knowing, at what point can you tell if a deal is too good to be true? Are there any tell-tale signs that you should not proceed with a deal?
I would start by evaluating where the deal is coming from. If it's coming from a wholesaler, another investor or if it's listed publicly, the chance of it being "too good to be true" is going to be higher than if you've found an off-market deal yourself.
Wholesalers and other investors know what a deal is worth, so they're not going to offer you an amazing deal (and cheat themselves of some profit) when they could just as easily offer you a good deal (and make more money themselves). Likewise with anything listed publicly -- if it's an amazing deal, you can bet someone else has recognized that as well, and it will be bid up to the point where it's no longer an amazing deal.
That said, if you find the deal yourself and nobody else knows about it, it's quite possible that it could be an amazing deal!
Hi @J Scott, I really have enjoyed your original books and I look forward to these newer ones. I'm actually glad I saw this post because I was going to tag you in a thread I was going to start so THANK YOU for this opportunity!! Grab a cup of coffee for this one :)
I really appreciated your SOW example ... I am a new investor just put in an offer on a deal (waiting to hear back), I have some cash but I will be using a hard money lender. I see on BP (thank you to all the members who wrote posts I read about this topic, but I didn't get a chance to take down names so some thoughts going forward are not of my own originality, but those of more experienced investors/GC's) that several people use it but I could not find one post that described how to schedule a SOW (I'm in Texas and I've been getting GC's that are all requesting 50% up front) with HML draws, even though people are evidently doing just that. I'm probably over-thinking it but I like to be a few steps ahead so I know what options are available.
So... my thought is: GC wants to get paid, but HML charges for every payment, how do I schedule these items so the GC gets whats NEEDED to start and finish my job, without paying half my profit in draw fees? I was looking at your sample schedule of SOW and read some posts (I read one that suggested to front load the draws so you have access to a large amount of the rehab funds up front) saying what one side or the other wants but nothing so I can 'see the big picture'. So using your template and what I've read this is what I've come up with. Please let me know: 1. your opinion of my proposed schedule, 2. your experience with HML and SOW, and 3. most importantly the changes you would make to my schedule:
SOW: Initial down payment of $1000 or 10% (whichever is lower)
Demo, order and pay for materials needed for items to be completed before the first draw
Draw 1: Foundation, Ext framing, mold, pest, trees, septic
Draw 2: Roof, waterproofing, int framing, siding/brick repair, ext HVAC
Draw 3: gutters, concrete, plumbing, subfloor, ext electrical, ext trim, sheetrock, insulation, int HVAC, windows (I was told these take a while to get delivered but my thought is is framing, ext repair/trim are complete these would be a good time for them?)
Draw 4: Deck/porch/patio, carport/garage, int electric, int trim, fireplace, carpentry, cabinets, int plumbing, int paint
Draw 5: Ext paint, landscaping, countertops, tile, int paint, appliances, flooring
Draw 6: punch list, final payment from HML
This schedule will result in $900 worth of draw fees, but I want the GC to not worry about getting paid, as well as make sure the work is done right and doesn't have to be redone. I was trying to breakout each draw so that if something doesn't get done in time, the items that are done, can be paid.
Ok you can breathe now - and I look foward to all of your advice, concerns, jokes, and suggestions :).
Thank you!!
Is this a fair offer?
ARV: 170k - 180k (wholesaler estimate 200k)
Repair: 30k for rent (wholesaler estimate 20k), 45k for rehab
Cosmetic rehab on the main house, new roof on the mother in law unit and rehab
Wholesaler asking price: 125k can lower to 120k
Main house rent for $1200 to $1400, mother in law unit $600 to $800
I was going to offer 96k but I think I can offer up to 105k, but between 120k to 105k seem like a lot. Am I wasting time making the offer?
I'm having a GC to come look at the property to get more accurate number
Originally posted by @John Lee:
Is this a fair offer?
ARV: 170k - 180k (wholesaler estimate 200k)
Repair: 30k for rent (wholesaler estimate 20k), 45k for rehab
Cosmetic rehab on the main house, new roof on the mother in law unit and rehab
Wholesaler asking price: 125k can lower to 120k
Main house rent for $1200 to $1400, mother in law unit $600 to $800
I was going to offer 96k but I think I can offer up to 105k, but between 120k to 105k seem like a lot. Am I wasting time making the offer?
I'm having a GC to come look at the property to get more accurate number
I don't think it's ever a waste of time to make an offer.
Originally posted by @John Lee:
Is this a fair offer?
ARV: 170k - 180k (wholesaler estimate 200k)
Repair: 30k for rent (wholesaler estimate 20k), 45k for rehab
Cosmetic rehab on the main house, new roof on the mother in law unit and rehab
Wholesaler asking price: 125k can lower to 120k
Main house rent for $1200 to $1400, mother in law unit $600 to $800
I was going to offer 96k but I think I can offer up to 105k, but between 120k to 105k seem like a lot. Am I wasting time making the offer?
I'm having a GC to come look at the property to get more accurate number
Have a discussion with the wholesaler and that should give you an idea of whether he has the property under contract at a price that would allow you to purchase at that number. If it sounds like he has it under contract at a higher price (thus not allowing you to buy it at that price), try explaining how you came up with your number and work with him to get the seller to lower their price.
In other words, view the wholesaler as your partner, not your adversary...
Hi,
I would like to know if you have used credit cards to fund any of your deals? If so, do you know a way to avoid the high cash advance fees/rates? Someone suggested paypal but I think they charge the sender 33% using a CC.
Originally posted by @Janis Ski:
Hi,
I would like to know if you have used credit cards to fund any of your deals? If so, do you know a way to avoid the high cash advance fees/rates? Someone suggested paypal but I think they charge the sender 33% using a CC.
I have not used credit cards to finance a flip. I don't like to use any form of credit where I don't have a backup option to repay if something goes wrong. And credit cards are typically a last resort!
Got it, thank you!
I have used my business credit card to pay for repairs, property taxes and general expenses but never to finance a real estate purchase.
I see that many "Gurus" advocate the use of credit cards to use as a down payment in order to buy rental properties for example. The interest charged on a credit card are very high. You could try to find a card that will give you interest free say for 1 year. This might buy you time so you can either save the money to pay it off or to find an alternate way to finance that balance .
It all comes down to how much tolerance you have for taking risks. Is best to always take" calculated risks".
Originally posted by @Salvador Kalil:
I have used my business credit card to pay for repairs, property taxes and general expenses but never to finance a real estate purchase.
I see that many "Gurus" advocate the use of credit cards to use as a down payment in order to buy rental properties for example. The interest charged on a credit card are very high. You could try to find a card that will give you interest free say for 1 year. This might buy you time so you can either save the money to pay it off or to find an alternate way to finance that balance .
It all comes down to how much tolerance you have for taking risks. Is best to always take" calculated risks".
Agreed. I see way too many people advocating for this, and while it may be a reasonable route for an *experienced* investor who is simply facing cash flow issues (has the money to pay in general, just not today), using credit cards for a deal in anticipation of using the proceeds from the deal to pay off the credit cards just seems too risky from my perspective.
@J Scott hey Scott thanks for this! I’m 25 living in Hoboken NJ and work in the downtown financial district of Manhattan. Looking to get started in multi unit real estate. Is it better to dive right in and start meeting with brokers, or perhaps work for a commercial real estate firm and invest concurrently while having employment around the industry? Would love some help and I’m open to any and all suggestions!
- Paul
Originally posted by @Paul Sabato:
@J Scott hey Scott thanks for this! I’m 25 living in Hoboken NJ and work in the downtown financial district of Manhattan. Looking to get started in multi unit real estate. Is it better to dive right in and start meeting with brokers, or perhaps work for a commercial real estate firm and invest concurrently while having employment around the industry? Would love some help and I’m open to any and all suggestions!
Hard to give advice on this, as it's a highly personal situation. That said, if you have both the opportunity and desire to work with a successful firm in the field that you want to get into, that's always a great option. While it's possible to learn this business from the outside (I and many others have), being on the inside can cut down your learning curve tremendously.
Even more importantly, you'll likely make connections with people who can help you succeed -- brokers, lenders, partners, etc.
So, I would never tell someone that they should quit their jobs to get a real estate related job, but if someone wanted to do it, I can't imagine a situation where I think it would be a bad choice.
New to BP and had a question. I believe this should be asked by a local mortgage officer but I'm hoping you can help. I found a property where I can make potentially 70K+. Only issue is they are only accepting cash offers. If this is the case, how wise would it be to apply for a Hard loan to get the cash and then apply for a conventional loan/FHA loan after?
Originally posted by @Kay Doria:
New to BP and had a question. I believe this should be asked by a local mortgage officer but I'm hoping you can help. I found a property where I can make potentially 70K+. Only issue is they are only accepting cash offers. If this is the case, how wise would it be to apply for a Hard loan to get the cash and then apply for a conventional loan/FHA loan after?
A couple things:
- It's possible that the seller won't consider a hard money loan to be cash. Depends on the seller.
- You won't be able to refinance FHA unless you plan to live in the property.
- You won't be able to refinance with a Conventional loan unless the property is essentially move-in ready.
- I can't tell from your post, but if you're planning to move into the property after you renovate it, it's unlikely that a hard money lender will fund the deal (lender will be subject to different lending rules/laws if you plan to live there versus use it as an investment).
If you plan to flip the property, why not just keep the hard money loan until you sell the property?
We want to live in the property. It’s perfect for our family and with the price will offer a good amount of equity.
So I guess my next step is to see whether the seller would accept a hard loan. I didn’t anticipate this to be a hurdle since I thought hard loans were turned into cash pretty readily.
Originally posted by @Kay Doria:
We want to live in the property. It’s perfect for our family and with the price will offer a good amount of equity.
So I guess my next step is to see whether the seller would accept a hard loan. I didn’t anticipate this to be a hurdle since I thought hard loans were turned into cash pretty readily.
The bigger issue here will be that very few hard money lenders are going to be willing to lend if your intent is to move into the property. Legally, they have less protection -- and must jump through more hurdles -- to make a loan to an owner occupant versus an investor.
You're likely to find it very difficult to get a hard money lender to make this loan.
So if we decide to flip to get the equity I have to 1. Figure out whether seller is willing to take a hard loan and 2. Just keep it until I sell it?
Originally posted by @Kay Doria:
So if we decide to flip to get the equity I have to 1. Figure out whether seller is willing to take a hard loan and 2. Just keep it until I sell it?
Yes, you'll need to convince (or at least verify) that the seller will take hard money.
And the lender will likely provide a 6-12 month loan, with the stipulation that you intend to resell the property, not rent it or move into it.