I apologize for my long winded first post. I have been lurking on these boards for the last 6 months, what a great forum! I am looking to solicit advice from some of the veterans (especially flippers).
My background has always been in real estate; financing, buying, rehabbing, developing; you name it and I've probably done it. I had a very profitable building / developing company that went belly up in 2010. My bank went under and the new bank (god bless their heart) refused to extend all of our lines of credit and loans that ballooned (did I mention how happy I was)? I was forced to liquidate all of my properties / land at bottom dweller prices to keep from filing bankruptcy. I was able to fight off bankruptcy and pay off all of my recourse debt. I packed up from Chicago and headed back to W. Michigan where I grew up, with a very small amount of money in the bank and lots of debt. I've spent the last two years paying off all of my debt and I am finally pointing upward. I do not have enough money to purchase any properties out-right; I do however have access to private money at a steep price. I have been offered money at 10% (origination) and 2% per month (they are local friends, not a company). I've never EVER seen money this expensive. I do realize it's cheaper than a partner but I am having a hard time not only stomaching the cost, but finding a deal that works under these guidelines. The W. Michigan market is ridiculously competitive right now, it's next to impossible to find a great deal. The REO's aren't making it past the 15 day investor bid period. So here are my questions:
Knowing how expensive the money is, would you wait until you found cheaper money?
I’ve tried networking and working with different agents, but I am having a hard time finding a deal that has enough meat on the bone. While I build relationships and network, what are some other tactics I might use to find a good deal? Any advice?
Are most of you guys doing 10+ deals a year buying strictly off of the MLS, or do you find most of your deals through non-traditional marketing tactics?
Thanks guys, sorry I am so long winded! I look forward to getting to know people.
With friends like that, you don't need enemies! See if you can partner instead, they buy, you fix and flip and split it, otherwise wait or look for other strategies, like options with owners, make repairs and have the seller sell you getting your rehab fees. Do something, but not that you're considering, IMO.
24% plus ten points? Outrageous!
Welcome Tim. In regards to your question, I can't imagine a deal that would make me want to borrow money that expensive.
Thanks guys! I miss the good ole' days when you could go directly to the bank.
They did make an additional offer of partnering and splitting three ways, to me that is too expensive as well. I guess I have to decide if it is worth my time. Either way, I've never used hard money and this is why.
On to the second part of my question.... Where do the guys that are doing at least 10+ deals a year get their homes? Whenever I purchased homes in the past, it was always off of the MLS. I've tried getting in touch with wholesalers in my area but they've been in large part, a waste of time.
Would you guys consider a 50/50 partnership if you were starting over? Thanks again for taking the time guys!
I forgot to mention, most of the loan amounts are under 100k. Most of the loans will probably be in the 60-80k range. Will normal hard money lenders even look at loans that small?
Do your friends wear Tracksuits and hang out in front of the Pork Store?
If you have access to credit cards, a lot of them are offering 0% for twelve months and 3% cash advance fee again. That's a lot better than the terms you are getting.
Tim, you have options. First, if you take Rob's suggestion, you could probably cash advance some credit cards to cover the down payment and rehab, then find a different source of private money at a lower LTV (likely 70% of cost) at much more favorable terms from a hard money broker. That's how I did when I started.
Your other option is to partner the deal. The loan sharks you've talked to suggested a three way split. Perhaps you propose a 50/50 split, where you get 50% for doing the work, and they get 50% for providing the capital (how they divide their share between the two of them is their problem, not yours...think about it...if ten of these loan sharks pooled money for you would it be fair that you get 1/11th?). This is how I did it after I took some huge hits and had to rebuild myself, like what you are doing.
If you can't find anyone to 50/50 partner with you, perhaps you take a slightly smaller share on the first deal, to prove yourself, then you slide the split in your favor once YOU become a known quantity to your partners. But hey, you HAVE a background and a track record...present it in a compelling way so your partners see you as an experienced expert not someone doing their first deal.
As to your sourcing question, I think that everyone has a different opinion on this. My opinion is that you find the deals wherever you can. If you are just getting your fresh start, try one thing, and if it doesn't work, try something else. It sounds like you will do relatively low volume at first due to capital constraints, so you just need to find a deal however you can.
I flip a little over 100 houses per year, and here is how I do it: I fish from every pond, every day. Just like a fisherman has to be patient, and some days catches no fish, so goes real estate. I'm at the courthouse steps, I buy off MLS, online auctions, wholesalers (which you are correct that 99% can't perform), word-of-mouth, you name it. Sometimes one method is working and others are not. The volume shifts around and there is no way to predict it. So I'm everywhere, blanketing 14 counties, because sometimes there are deals in one area and not others. Volume is about presence.
Right now, you don't need any of that because you don't need volume, you just need a deal. Besides, it is an expensive way to do business, and unless you have the capital to acquire the volume, you will go broke trying to get it. Hopefully that helps you in some way! Good luck!
Thanks Brian. I’ve countered their ridiculous offer with a 50/50 split, even though it pains me to do that. I feel as though 50/50 splits are something for newbie’s, but at this point, I’m in the same financial position as somebody who is relatively new. Even though I’m slightly embarrassed by my first post, I’m glad that you guys were so straight forward. Even though I grew up here, I know very little about this market. I need to be patient; I’ve always found that the money magically appears when there is a good deal. I am getting too excited to move forward, the reality is I can wait until spring and I will have enough money to go a cheaper property on my own. Thank you for pulling me back to reality everyone.
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