Need Finance Help with Fix and Flip

9 Replies

Hi ya'll,

I'm going to ask for some help, but I would like to give out a tip as well.  Maybe you used this technique starting out, maybe not.  

Here is my scenario: I saw a "For Sale by Owner" property in my neighborhood, so I decided to call the number on the sign.  Turns out the gentleman on the other line was a wholesaler and seemed to be very knowledgeable.  This sent off a lightbulb in my head.  Did I just find a mentor?  

Anyhow, this man is a wholesaler/fix and flip investor and has a property that he is about to rehab.  He told me that he is selling the property as is for $97,500 or will rehab the house and list the property for $159,000 which I see value at $149,000.  He stated, he would be willing to mentor/collaborate our ideas on the project and let me use his local resources to rehab the property at a reduced cost if I were to purchase the house at the AS/IS price of $97,500.  His reasoning is that I will go to him for properties in the future and continue to help him grow his business as well as my own.  I'm sure he'll make a little extra money on the back end through this as well.  The house needs carpet/laminate floors, HVAC Unit heat pump, and minor drywall repairs.  Also, a new range, dishwasher and paint.  Estimated rehab costs $20,000.  He bought the house through a Sheriff's sale and has been in the business since 2007.  He told me we would be done the rehab work in 3-4 weeks and have the house on the market within a month.

Here is where I'm stuck. Financing!!! I haven't had time to read Brandon Turner's book, The Book on Investing in Real Estate with No (and Low) Money Down.  I told the owner I would get back to him in 2 days with a Yes/No to give him the go ahead to rehab the house himself or to buy the property as is and work together with him to rehab and flip the house.  I'm looking to obtain financing for both the property and the rehab work.  The banks I called are not portfolio lenders, so any tips would be great.  MY DEADLINE IS FRIDAY.

Should I pursue? Should I Slow Down? I'm 23 and like to get hands-on.  That's my best bet for learning the business.  Let me know what your opinions are! 

Tip:

For beginners: Dive in! Call the number on the For Sale By Owner sign! You may be surprised who will pick up the phone. I'm hoping that I pulled the right straw and now I have a mentor/business partner to help jump start my REI career.

Thank you all in advance!

I would want to fully understand the title implications of a property bought at sheriff's sale in your state. Convince yourself that this property has a clean title.

Assuming the info is available to the public, I'd want to know what he paid for the property. Would just be nice to know. You might have some room to negotiate. 

The deal doesn't look bad at 159k ARV. It's starting to look thin at 149k. A lot will depend on if you use a full commission agent when you sell and what terms and fees you get on your financing. If you can only get 149k and have to pay 6% commission, you are down to 22k remaining to pay finance costs, closing, utilities, taxes, insurance and your profit. Can't have any major surprises with those numbers.

Days on market is another thing to check.

I'm not much help with your financing issue. You might post a request in the marketplace and see if you can find someone who will work with you. A good HML will also let you know if they think this deal has enough room to be successful. Good luck!

Bill,

Your input is greatly appreciated! I did try to nudge him on the number and he wouldn't budge.  Didn't low ball him, just asked him an honest, "How flexible can you be with the selling price." He wouldn't let me know about his price paid with the Sheriffs sale and that kind of throws me off.  I think I'm going to pass this one up based on your feedback.  If I could knock him to $85-90K, I would have a lot more comfort.  Thanks again for your input.  The search continues to find my first deal!

I think you would still get some valuable experience by running this deal through a reputable hard money lender and seeing if they would fund it. It sounds like you need to start making those connections anyway, so you'll be able to act more quickly on the next deal.

The only thing wrong with a small projected profit (<15k, for example) is that it puts you a couple of major issues away from a loss. If you know your numbers and you're confident you know the full scope of repairs, and have someone else looking into it like this wholesaler seems willing do, it may not be a bad deal.

I don't know if you saw this post or not. The numbers on this deal are similar to yours, and maybe a little worse.

If you're confident the numbers work, go find other investors to fund the deal. Or offer someone 50-50 split on it. Find a rehabber and ask for a piece of it. You get paid for your education and you have another mentor. Best best is bring it to other investors and ask them to fund it. You could go hard money but make sure you are very conservative on your numbers.

@Cole Fisher

Hey Cole,

I wouldn't slow down. Keep up your energy, enthusiasm and momentum. 

I checked out your profile and did see that you are at the very beginning of your career in REI. Nothing wrong with that, but it might present a few challenges when asking for 100k on what sounds to be a multifaceted first deal.

I'm sure there are some easier and different ways you can get started, this sounds a little suspicious to me at first glance and as mentioned the numbers do seem a bit slim.

Usually properties purchased at a sheriff sale aren't in the best condition, I wonder if there might be more rehab to do than what is stated. Have you been inside the property yet??

Also as stated, look into the HML side, make those connections and learn at every turn. After you have a little experience under your belt you will likely find the one common problem you have most often will be not enough funding to fund the opportunities that you will find. I would advise you begin to make connections there as well.

Another thought on this project is, can you volunteer to be part of the rehab effort either for pay or free so that you can learn about what it takes to perform this kind of work and get a birds eye view of the standards this other investor operates by?? You would certainly learn more than you expected I'm sure!

I would also want to see some of the other flips that this wholesaler has done.  Some do excellent work while others, well you know.  You want someone who has a good reputation, especially if you are looking for a mentor.  The deal seems fishy to me.  He very well may rehab it himself, only because I am sure he paid considerably less than the 97K offer price to you and has a whole lot more potential profit then you would have.  

Recently I was watching a house on one of the auction sites.  I think you could have bought it for around $60k or less.  A local wholesaler bought it and listed on C-list for $90k.  After a week lowered it to $80k.  

If he is a wholesaler, he knows the drill. I would not pay over $85,000 based on your rehab numbers. As someone once stated somewhere on BP, "I would rather lose sleep over a house I didn't buy than a house that I did buy." It does sound fishy so proceed with caution. Have an inspection. Things that come to mind, 1) Why doesn't he rehab it? 2) Research the title, as mentioned above. Now is the time to establish a relationship with a title company. 3) How long has he had control over it and why hasn't it sold yet?

Thank you all for showing interest and helping me out.  I am going to call a bank that offers Portfolio Funding today.  Just to see what I can stir up.  

His other properties can be seen at MJSPLLC.com  He is specializes in luxury homes and is very proud of his work.  Being in sales and having purchasing experience, why wouldn't he budge to lower his selling price.  If I could lower the cost to 85k and get him to take a 50/50 split on the profit would this be a viable deal?  

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