Can you help me, help this new investor?

Question

I asked him more questions His lender loan expires 3/26

He owes about 115ish to lender and then is 35K personally invested
For personal reasons, he needs to sell.

I would like to help him if I can, even if I don't make anything from it. It could easily be me in this situation!

Thanks for your help.

Wayne Brooks · Answer

@Regina Sloan You didn’t tell us What he wants to do.....flip or hold.  If he wants to sell, a wholesaler is the worst option...just get it on the mls which will expose it to everyone...buy and hold investors, flippers, etc.

Regina Sloan · Answer

Account Closed Thanks for these wise words as they have stuck with me as I enter this journey. We are dealing with this now with a property we are interested in. So, would you say to wholesale/sell to an investor? atleast to get something out of the deal. what do you mean by "dump it"?

Account Closed · Answer

As stated in my recent post, the deal looks like it was bad from the start and if you try to salvage the deal by doing some sort of financing strategy you are taking more risks that could cause you to lose even more money.

After reading the responses in this thread I don't see any magic pills. I see a bad situation that can get worse. I made many bad investments like when I put $550,000 in cash into a property, tried to sell it for two years and dumped (sold) the property to the first person who offered me $200k.

The day I accepted the offer for $200,000 and took a loss of $350,000 I actually made $650,000 on the same day because a broker called me on the same day and told me he had a 14-unit property for sale for $825,000 on Vermont Avenue in Gardena California. I told the broker the address of the property before he told me because there is only one 14-unit property in Gardena on Vermont Avenue. I already knew how much the property was worth because it is about 2200 feet down the street from where I live and it was worth $1.4 million, or $100k per door as they say.

So, I put the building in escrow, used the $200,000 I got from the property I took my $350,000 loss on and I was now way ahead of the game (as they call it).

Maybe, you will be better off dumping the property (sell it for a loss) and invest whatever money you have into something more-profitable, or dump the property and get far away from real real estate investing if it is not your 'cup of  tea'.My personal thoughts are; I would rather dump the property, accept my losses, save from losing sleep for many months and utilize my time and energy for more-positive and more-profitable investments. Even the most-experienced investors make bad decisions and get into jams where they can't dig their way out.

I know I always come across as being a negative person, but there is what I think is a logical reason. If you bring me an investment opportunity I will refuse to listen to all the great things you want to tell me about the opportunity. The very first thing I will ask you for is I want to know the risks and this makes me totally the opposite of most other investors.

Most investors get totally blinded by the opportunity. Money is hard to earn and simple to lose. If you want to consider some sort of financing you need to focus heavily on the risks i.e. your tenant moves out, the unit is destroyed, it costs you money you already don't have to remodel the unit, the unit needs a new furnace, or sewer, or expensive water pipes, water heater, etc.. You remodel the unit and your new tenant is the tenant from hell, doesn't pay his rent and it takes you a year to get him out and you lost both one year of rent plus attorney fees. Those are all real-life real estate risks and if you don't have the cash in the bank to handle those risks you will dig yourself in deeper.

"I'll bet you never read what I just wrote in any motivational real estate book"

My shrink always told me, "you are an idealist, but we don't live in an ideal world". So, I realized I needed to focus more on the risks rather than focus on what would be ideal. In an ideal situation the contractor who sold you the property would have told you the truth, or something that was more-accurate. In an ideal situation, some sort of financing could work, but we don't live in an ideal world and are you willing to take that risk. Not me! I don't invest when any risk can turn the tables against me. I don't invest money to take one step forward and take a chance I will have to take two steps backward.

Account Closed · Answer

I thought her post states he needs to sell the property for personal reasons and getting a new loan does not solve this problem.

Maybe, the roof needs only a minor repair and then the roof can be certified by a roofer to sell the house.

While BP currently has a thread about paralysis analysis, the problem with this deal starting when the seller said the ARV was $180,000, the buyer should be easily aware that trying to sell a house that rents for $1200 won't fly when the price of the house is $180,000. As stated in a recent post on the Analysis Paralysis thread, there are thousands of properties for sale for less than $60,000 where rental income is $1,000+.

Sometimes, it is better to dump the property, take the loss and move on rather that digging yourself in even deeper with financing strategies and many unknown factors. Maybe, you get a new loan, the tenant moves out and now you have a vacancy for several months that costs you a huge loss, you have to pay a fortune to put the unit is pristine condition to re-rent it and your recovery plan fails and your investing career becomes more miserable.

Don't ever make another business decision based on some so-called expert's advice. If you have to ask someone else whether or not an investment is good then you should not invest your money. Every broker and seller has their own agenda and you can bet they don't care if their agenda aligns with your agenda.

Put the property on zillow, loopnet.com and other websites without a real estate broker and tell the buyers the same line your seller told you and that is another serious problem with brokers. Many years ago, I called a broker to sell my personal residence. My property was on a major boulevard and was zoned for both commercial and residential use. My broker told me the most I would get for my house was $425,000. I told him b.s.!!! We argued and I told him I wanted the property listed for $625,000. The first person to look at my property paid the $625,000 in cash and had I listened to my broker I would have lost $200,000.

I had this exact same problem with brokers many times where I would have lost hundreds of thousands of dollars. I purchased a 28-unit property and the asking price was $2,150,000. I told my broker to offer $1.9 million. He refused to make the offer and said he would be laughed at. So, I told him I would go to another broker and he made the offer for $1.9 million. The seller came back with a counter for $1,950,000 and I saved $300,000 by not listening to my broker.

So, start making your own decisions rather listening to what someone else would do!

Brad S. · Answer

Seems like some missing info. How much did he buy the house for?

He has a loan for $115k ishHe put over $35k into the house.So, that adds up to $150k

So, if he was told it would be worth at least $170k after he rehabbed it, that would only leave $20k gross to pay holding costs, sales costs, etc. In other words, he pretty much lost money the minute he closed escrow on it, and this transaction just turns into an expensive "seminar" (lesson). Unless, he was thinking of keeping it as a rental, which is what it sounds like. But, either way, unfortunately, this does not appear to have been a smart investment decision on his part.

As he stated, he can try and sell it privately to recoup some of the money invested, or he could refinance at 80% (as Tim stated), find some money to pay off the loan differential, and then he can try to lease-option it, to a tenant/Buyer, for a higher rent and up-front option consideration (chunk of upfront money for the right to have the option to purchase). That way, he may be able to get back the money he had to come up with for the loan payoff, and then he could possibly get more cashflow, with higher rent, and he could negotiate a higher option price for the house (possibly around $160k-$170k. The negative is, if the tenant/Buyer does exercise the option, it most likely won't happen for a couple of years or more down the road. So, he wouldn't get his additional money back till later. But, he'd potentially, have more cashflow till then.

Example:

He refinances for 80% of $140k valuation$112k new loan + $3k cash = $115k payoff to current LenderSell house to Tenant/Buyer on a lease/option, for $1,500/month, and an option to purchase the house for $170k, within the next 2 years, and an upfront non-refundable option consideration payment of $5k (to Landlord/Seller)Then he gets an additional $300/mth cashflow, until the option is exercised or not. And if the tenant/buyer purchases the house at $170k 2 years later, he may get his original money back and possibly make something on top of that.

Oh, and he can require the tenant/Buyer to install an AC unit and repair the roof, as part of the deal.

There are a lot of options and variations to this, but this is a simplified version.

Regina Sloan · Answer

Thanks all! He is listing for 155k and taking what he can get

Robert Beardsley · Answer

did this individual post about this recently on BP. looks like the same situation atleast. not sure if there is anything you can do other then tell him to take the loss before the loss get bigger. unless you want to save him buy taking the loss for him or asking another investor to take the loss for him. just not sure why anyone would want to take a loss for someone else...

Regina Sloan · Answer

Thanks to you all!

Tim Herman · Answer

@Regina Sloan Wholesaler implies a discount. If he wants to sell then list it on the mls like @Wayne Brooks he will get retail price. List 159k take 155k expenses 15k net of 140k.

My way he gets a return on investment. 35k invested plus 5k refi. $480*12= $5760 per year income. 5760/40000= 0.144 or 14% return. Out of the cash flow he will have to deduct capex and repairs.

Greg Scott · Answer

In a DM, you indicated this property was near Allisonville and 46th.  Looking at the last two years of sales, I see NOTHING selling over $150K in that area.  The average is closer to $85K.  There isn't anything currently for sale in that area so comps just aren't going to support a high valuation.  It appears the writing was on the wall before they started.

This situation puts Mainstay Construction and Fund this Flip in a very bad light.  Their actions look predatory.

If it were me, I'd do the following:

• I'd probably start with a conversation with Mainstay and Fund This Flip.  Do they have any data to suggest the Appraiser is wrong?  What were they looking at months ago?
• If I think the appraiser is wrong, go get another appraisal.
• In parallel, I'd start looking for other loan products.  My "best case" situation would be to find a lender that will do a rate & term refi out of the Hard Money Loan to reduce his monthly payments.  Hopefully after he does that he has enough cash flow to fix minor repairs like the leak in the roof.  If he can get there, time solves a lot of problems.
• But, if they really need to sell, he is going to take a haircut and sell.  Generally working through a wholesaler won't yield the most dollars.  I'd ask his property manager (who legally must be a realtor) if they have any other clients that would like to buy a rent property.

Can you help me, help this new investor?

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