Flipping Newbie -Investor/Partner deal... Is this a good deal for me?

16 Replies

Okay guys I have never done a rehab a wholesale, or anything of the sort. Fortunately my father owns rental properties - both commercial and residential, my sister is a real estate agent, and I have been studying the art of wholesaleing, flipping, and general real estate for months now so I do understand the generalities of it.

My question is this:

I posted an ad on craigslist looking for a mentor/ investor. Someone who would invest with me (using the decent stack of cash I do have) and teach me, in exchange for a percent of my profits.

Today, immediately the morning after posting the ad I received a phone call from a man that owns a wholesale, rehab, and brokerage in my hometown. (one of those 1-800-webuyhouses things)

Being as I am a Marine he seemed fond of working with me since he was an Army vet. or maybe he just wants to make money... anyways.

He wants 5k cash up front and 5.5% listing fee. He told me to get approved through a hard money lender (RED DIRT LENDING) which I've already done. They want 14.5% 4 points, 6 months only, and I need to register a business name. I am now already approved with them.

In return for my 5k cash and 5.5% listing fee, he apparently will let me rehab the homes he finds (which according to him have solid profit margins after repairs). I am waiting for a phone call from him tomorrow in which I will either get a property with 50k+ profits or his other 80k+ profits.

So basically I am paying him 5k cash and the 5.5 percent to find the home, let me buy and rehab, then he markets it online. Is this a good deal or is he just generally attempting to make big profits off of me.

Please, I need your opinions. This is my first flip in houses, I don't want to lose and I want to make the right moves. On the first two cars I ever bought and sold I lost 15k cash, after that I have a 41% ROI but I would like to not make the mistakes I made with cars, on houses.


Is this correct?

1. He sells you a house + $5,000 cash

2. You rehab it and and he helps you sell it for 5.5% commission?

Do you pay the 5k when you buy the house or just for him to start helping you? Are you able to verify the values of these homes?

$50k to $80k is a huge profit margin; are you sure this isn't just the spread between purchase and sales price? Why would he give these deals away for $5k and 5.5% commission?

Yes all of that is correct... It is starting to sound worse and worse.

But being as he (according to him) does more business than all the other wholesalers and rehabbers combined in my town, it sounds like he gets a lot of houses under market value. So I wouldn't have to search for distressed properties, he would basically just tell me what house he has.

The 5k would be once I started the first house deal. I am not sure if the 5k is a one time deal (he said 5k up front) or if it is everytime (which I would never ever do).

I have not seen any of the homes, or gotten addresses yet. I will get an address for whichever property he tells me about tomorrow at which point I will access the value using basically my car selling strategy.. check the market value, what homes in the area are selling for, etc.

In your last question that is another question I need to ask him. I'm going to assume the 50k or 80k is before rehab.

Last but not least he did tell me to "trust him" and that he'll make me money.

I'm 26 and I'm not rich, but I make more money than anybody I know around my age while only working 5 hours a month, and I DID NOT get to where I am by "trusting people". The word trust in general scares me.

Is your sister a local agent to the area? Check his credentials, here in California you can look up any agent on our MLS and see their activity history. You really do not need to be "Approved" by a hard money lender, hard money is protected by the collateral property. The pricing they gave you is a bit high, and if you are a newbie you may want to go with a program that will be a year(in case you have hiccups on your first project) with no pre payment penalties (you will not get charged if you pay it off early). Never give someone money upfront. Even if he gives you a deal, what do you do if you lose money on it? Is he going to give you the 5K back? Giving him 5K a deal wouldnt be bad as long as they are successful projects. Make sure you the transaction records and pay him after. If you have any questions contact me.

Hey Chad

Congrats for taking action.

I'm making a couple of assumptions here so please verify them.

1st assumption: It sounds like he's asking for a 5k wholesale fee / assignment fee (which would be for every property). That is a very reasonable fee if he's getting properties where the numbers work for you.

2ns assumption. The 5.5% is likely to list the property on the back end. If he finds the buyer he makes the whole commission. If another agent brings a buy he will split it.

If the above is accurate, it seems very reasonable to me. I would take that deal in a heartbeat for good rehab projects. But I'm in ht e SF Bay Area the completion for deals is fierce. I haven't found any good wholesalers that are regularly bringing me deals in my area. So aside from web marketing, networking and direct mail,what I'm doing is offering a few agents a double ended commission if they find me deals. I'll pay them commission on the purchase and ill list it with them when completed. This gives them an oppty to make around 5-10% total commission, which can possibly be more than I make after splitting with JV partners. But I try not to worry too much about what others make, if the numbers work for me.

You may also want to check out the Homevestors guys in your area. They have several properties in Tulsa listed on their site. Google 'we buy ugly houses' and look at their online listings. This will give you something to compare the deals to.

Good luck and happy investing.


That long post reminded me of the guy who walked the wire over the Grand Canyon.

Seriously that is way too many things you need to go right to make it work. Said another way you are too dependant on others to float your boat. Save more, money doesnt grow on trees or fall off them.

Said another way I bought so many properties like that where the owners/gamblers were over extended during the downturn.. Dont get yourself in that position

Good Luck

Well thank you I'm taking every action to get the ball rolling.

Did not know that you didn't have to get approved, I paid $100 today to reddirtlending in Oklahoma to "approve" me today. Does anyone know typical oklahoma hard money rates? I'd like to negotiate with them or move on, and over the years my negotiation style now means "take it or leave it".

To answer another question yes my sister is in the same town I am. I could have her check the mls but do I have her check his real name,, or his company name.. The guys company is 18002sellhomes.

I'm at a bit of a confusion fork in the road here. Now that I know it's that easy to get a hard money lender I'm ready to go. But do I negotiate with this one, get another one, etc.. and what are points? The lender said it was 4 points, i figured i would google it later. Understanding markets is easy for me so whatever I buy will be under market value. But do I use him, try to find my own by making Craigslist calls, driving for dollars? (Eh, tried it, couldn't find a single thing).. Etc. just not sure where to go from here.

Hi Chad,

Have a couple of questions regarding your post.

1. Is this 5k, 5.5% commission for each deal you do?

2. What is he providing with you during the rehab?

3. How is he getting deals with those margins?

If I were you I would like to talk with people who he has provided this service in the past and what their results were.

I would also like to see actual deals and numbers to verify he can produce the results he is presenting you with.

I'm trying to figure out what exactly you are paying for.

I am not sure of what your resources are but it sounds like you may have family that could possibly provide you with some very good insight. I would start there.

Most importantly, you really need to study and know your market. A hard money lender will want to qualify people they lend to but whether or not the deal makes sense will likely determine the likelihood of a deal getting funded.

FWIW, I would be very cautious allowing someone I just met to value a deal that I am using my money/credit. Especially when they get paid upfront:)

Good luck!

I'm not speaking with the guy until tomorrow so I'll bombard him with the questions then. Overall it sounds like I need some feedback from the mls system on him as well as the structural details of what exactly he is talking about.

In the end, I've got books, a cell phone, and a laptop with internet... Everything I need to make money. Now that I know that I have the ability to access funds, within a very short time frame I will find a way to complete my first flip and I will not lose on it.

I will let you all know what he says tomorrow. If it doesn't work out well with him, or the numbers don't make sense, then I guess I'll hit craigslist hard with lowball offers left and right tomorrow and get this ball rolling.

Chad, You wrote

"In the end, I've got books, a cell phone, and a laptop with internet... Everything I need to make money"

Dont forget your common sense. If it doesnt feel right dont force it. In the end only one person in your equation is going to get hurt financially and its not them. Remember that.

Jay, both of your posts on here have been comin sense things. Things that don't need to be said. I thank you for trying to help but if you'd like to give input, actually transfer me some form of knowledge or information.

it's a different guy named I believe..Ralph goodman I'm not at home right now so I would have to check my notes. He's owns the eastern oklahoma franchise of 1800 2 sell homes

Gotcha. A few more things I will add:

- If someone says "I guarantee I will make you money" when it comes to real estate, I would run, not walk away.

- After doing a substantial number of rehab and resale projects in and around Tulsa, I can tell you it's a tough business and I realized an average profit margin of around 8-10% of sales price. I should add that I did work with a general contractor so my margins were reduced accordingly.

- Best of luck. Tulsa's a great town for real estate.

Chad, I am so new to this myself but I have A LOT of common sense. To me.........this does not feel right!!! I prefer NO brokers. No offense but they're like lawyers will be happy to cut in to anyones deals. Just like Jay C said you need common sense as well. If I were in your shoes I would bail out of working with him. But , thats just me!! You can get deals you have to work for it and look. I know this is what "I" have to do! Don't lose your money!


18002sellhomes is a large wholesaling company here in OKC and probably Tulsa. While Leo has had troubles in the past, the company seems to be fairly reputable as of late (although they low ball, but then again what wholesaler doesn't?). They also seem to be really successful.

Although I have never used red dirt personally, I know multiple investors who have used them, and they have expressed good things about the company. They move fast, estimate their own repairs (they definitely don't want you to get into a bad deal), and are pretty helpful throughout the process.