Do joint ventures and newbies mix? You just can't give people $50,000, if they don't see the value
I believe that all newbies are not alike, in fact we have all been there right? But what makes the difference between a successful, a dappler and just one you should run away from? I am going to vent on my experience that just happened today and why I should have stayed far away from this newbie.
I have an great deal on contract and I will share all the details so hopefully it becomes a learning experience.
My house is a 4 bedroom 2 bath, split entry house, with attached two car garage in a good, well desired neighborhood.
My purchase price: $65,000
Rehab costs (given estimate by contractor): $50,000
ARV given by REA of actives and solds: $190,000+
I had advertised this house and through net working, I found a local investor who has several rental properties and is a cash buyer. He was very interested in this deal, however has never done a flip before. I offered to sell it to him for $77,500.00. He does not know what I am purchasing it for. Still a very good spread on his side. I was to close last Friday, but he was "nervous", he didn't understand how this wholesale thing worked so I explained it in great detail in as easy terms that I could possibly do. And believe me if you have to explain non traditional real estate actions to a traditional buyer, proceed with caution and this a slippery slope. So after many conversations, texts, and time, he needed "more time to wrap his head around it". I had to ask for a 7 day extension-TOMORROW, which I was charged a $100.00 per day per diem 7 x$100.00= -$700.00. He kept telling me he was interested, called me on Sunday night and told me he was in. Great, I proceeded as the deal was to close with him. I sent over a PA, (Purchase Agreement) with his purchase price being $77,500.00. He is reluctant to sign, because he doesn't understand, "how do I get paid?" After more long drawn out conversations about how this works, we move forward. Still now signed PA. Because this was a foreclosure and bank sent title work to title company out of state, it makes doing a double close, pretty impossible as I would be using his funds to close my purchase. I was prepared to use transactional funding to close the deal. Last night he calls me and needs more clarification on how I am getting paid and how he feels that he didn't get to negotiate the best sale price. He than goes onto tell me he wants to know how much I am making on the deal and feels that I should only get paid flat fee of $3,000.00.....YEAH RIGHT!!!! I explained to him that what I make really does not need to be known (first off this is our first deal and you don't want to disclose this to someone who doesn't understand) -and when your spread is large it is best to do a official closing. What matters is the numbers work on his side:
His purchase price: $77,500
Rehab (which he went through house and estimated) $50,000
ARV given by REA of actives and solds: $190,000+
He cannot let that fact go that he doesn't know what I am making and believes that I should fully disclose that and it again should be no more than $3,000.00. I asked him what would it take to make him feel better about the deal and how do I help him understand it better. He wants to negotiate with me on the price and he wants $75,500, so I agreed - $2,000 for me. I explained to him that I needed to close on Friday and that I would have to use transactional funding to do so. He wants and insists to use his funding. I then have to explain that the best way to use his funds would be through a promissory note for HIS protection and mine. In this note he would provide the $75,500 and in return I would provide him the title of the house. After a very long drawn out conversation of 2.5 hours I believe that we have come to an understanding and we are moving forward.
This morning I send my attorney an email asking him to draw up the promissory note. I sent him a text stating as such. I then get a texted that he all freaked out that an attorney is involved and he doesn't understand how this works and my attorney needs to explain it to him. Then he is going to have to have hire an attorney to look at it, after all it was my attorney who drafted it. I explained to him that it was for the protection of both of us, and I really didn't care what attorney drafted it up. I then had to email my attorney and tell him we no longer needed the Promissory note. He than says well I want to close at a Title company, as this is the traditional way to do it. I explained to him we could close at the title company as I had already called them but they weren't able to do it until next week.
This now means I don't have the funds to close my deal and I to try to line up transactional funding in less than 24 hrs. I also tell him now that I will have to charge it back to him the cost and go back to $77,500.00 if we close next week. As I am already out quite a bit:
-$ 700.00 for per diem
-$2,000.00 for renegotiation
-$2,000.00 for transactional funding
-$1,500.00 for closing cost I offered to pay
=-$6,200.00
He than tells me that he is not going to pay anymore cause it is not his fault that I have to use "whatever transactional funding is"
After wasting my two weeks and my whole night and day of babysitting, and spoon feeding him. He pulls out of the deal.......It is now 4:00 on the day before I have to close. I have no buyer and it is hard to reach out to any businesses at this time.
Moral of the story: No matter how good you wrap the gift, some people never appreciate the value of it.
So my offer to any other investor out there (as I need to start blasting this out to any sight I can think of), if you would like to joint venture with me and make some easy money: I provide deal and rehab crew-lined up ready to go you provide funds, we split profit 50/50.
Purchase price of: $65,000.00 for purchase Tomorrow
Rehab: $50,000.00 (2 months or less) as I want it on market by spring
All in cost: $115,000.00
ARV: $190,000
We can list at $184,900 or $179,900 for easy dunk, sell at $175,000 if not more, minus fees, we take away approximate: $50,000 which would be about $25,000 profit for each of us.
Let me know if you are interested and you are seriously able to provide funding for tomorrow. As the deal is too good to let slip away!
Thank you,
Tonia