Strategy for First Rehab

14 Replies

The plan my partner and I have is to use a wholesaler to find a distressed single family home with an owner who is willing to do seller financing. However, we will only consider a property if it is priced at 70% of the ARV minus the cost of the rehab, is in a good location, and as long as seller financing is available. Once the down payment is made (partner and I will cover the down payment with our savings) and the property is bought, we will then use a hard money lender to obtain a loan and use that loan to rehab the house. Once the property is brought up to or close to its estimated ARV, we will then put the house on the market and hopefully sell it at or near its ARV. If the property does not sell soon after the rehab is complete, we will rent it out so that we have supplemental income to cover the cost of the loans from the hard money lender and the original seller. Once market conditions have improved and demand is higher, we will try to sell it once more.

Is this a solid plan? Is finding a seller who will do seller financing a realistic option? Is using a hard money lender to rehab the house a good idea? Would it be too difficult to turn it into a rental and try to sell it? Are my criteria too strict or lenient? How would I go about finding a hard money lender or other private investor? Any suggestions, advice, or critiques are welcome!

Thanks

Jared

Jared

I am sure more experienced investors will post after I have, but I wanted to add my thoughts on what I have been learning. That plan, in theory, is good. You have your goals, how you will attain them, and 2 potential exit strategies. However, at some point during this flip, something is bound to go wrong. It's good that you plan as well as you do, but make sure to be ready for something to go wrong. A tip I just learned is if your hard money lender is hesitant about the deal, it's most likely not a good deal. Also, have you looked into FHA rehab loans? Just a thought. Also, I have read that some many people panic when there house doesn't sell immediately, it takes some time, obviously at some point its time to come up with a different idea, but be patient at first. Overall, in my mind, seems like a good plan. Just be ready not to panic if something goes wrong. Happy flipping!

-Evan Burke

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My answer below is based on a limited amount of experience and market logic.  So please take it for what it is worth.

Is a buyers market, the floor is the limit on seller financing. I had a friend in Ohio who negotiated a 0% rate on a package of SFH rentals (Zero down too). Why? Because the seller was motivated to sell and needed someone who could take care of his 20-50 properties long enough to pay off the loan. There were no cash offers. Since my friend was the only buyer, he could set the terms.

In a seller's market, a seller should only finance to a person who cannot qualify for other financing, and they should collect a high rate to do it as it is the buyer who is motivated.  My partner and I offered 12% owner financing on our property because we wanted to be cashed out.  We ended up getting a offer for a bit less, but it cashed us out of the deal.  So we took it. 

The short answer is that you can always negotiate any terms that are accepted, but it is logical that you get cheaper rates in an neutral to buyer's market.

@Jared Kovall-Scarlett, would you say that you are in a seller's or buyer's market?

Other BP'ers with more experience, please feel free to correct my conclusions.

Originally posted by @Brian Gibbons :

@@Jared Kovall-Scarlett

Think about a JV w a seller on a minor rehab, seller carries a single payment note until resale

 Do you mind explain a Joint-Venture with the seller, and what it means by seller carrying a single payment note until resale?

Am I understanding it correctly that the seller takes some of the resale profit? And does the title never transfer to you but directly to the final purchaser?

Thanks in advance!

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Originally posted by @Huyen Nguyen :
Originally posted by @Brian Gibbons:

@@Jared Kovall-Scarlett

Think about a JV w a seller on a minor rehab, seller carries a single payment note until resale

 Do you mind explain a Joint-Venture with the seller, and what it means by seller carrying a single payment note until resale?

Am I understanding it correctly that the seller takes some of the resale profit? And does the title never transfer to you but directly to the final purchaser?

Thanks in advance!

home seller, where you don't buy it but offer to do a mild rehab,

let's say a house that needs updating, MILD REHAB, "grandma's house",

Say Arv is 200,000, needs 20,000 in work, I like probate houses for this, the heirs want quick solution.

Offer this to the seller,

Mr Seller,

we will do a joint venture,
I'll come in with my money and do the rehab,
pay the workers pay materials,
then will use my agent to sell, pay the commissions and the closing costs, and
then when the house sells I'll get a check for what it cost to do the rehab, and I'll charge joint venture fee, and
that fee depends on a few factors.

The mechanics are buy it sub2 or a note w no payments, own it
Get private IRA loan for the $20K
Place guaranteed profit JV agreement for you and the seller
Then improve it - list it at 97% of comps with a high producing agent - work with agent on improvements as far as what buyers want.

"The bottom line Mr Seller is you're going to have a house that many people want and will pay top dollar for, you have a good agent that will sell the house quickly because it's priced correctly for quick sale, usually 60 to 90 days you have a check in your hand, To get started we need to sit down and do an estimate of all the cost to get the property ready for sale, and and give you a proposal. My solution will be to beat any "we buy houses" investor proposal"

@Brian Gibbons That's a very educational post and I had no idea about it but it makes a lot of sense. Thank you for explaining in details to a newbie.

Just to pick your brain a bit further, have you done any of these deals? How much are the quiet costs usually (the work to get it subject-2 or note with no payments, profit JV agreement - do you usually need a lawyer?).

The reason I'm asking is there is a small condo (under 900 sq ft) that fits the exact situation, I'm not sure of the condition but I think there might be a small margin to gain (5k or less) and so I don't know if the quiet costs will eat into everything very quickly. But it's so interesting to learn all these different techniques in acquiring a deal.

Thanks Brian!