Need advice: House deal
I just sold a house and I want to do a flip to increase my cashflow so I can get into multi-family.
I made about $40K on the sale of the home.
Background on the market: Most houses here under $200k on the MLS are under contract within days (sometimes before they are even doing showings). Even total dumps are selling quickly if they're priced around $150k.
I found a FSBO 2 bedroom with a HUGE heated shop (very big selling point in this area) similar homes that are on the MLS like this are selling for between $140-160k without any reno. This house would be a big reno but nothing major. The roof, siding, heat system foundation are all good.
It needs a new bathroom, new kitchen, doors, lighting new flooring and paint. Maybe a new fence. It has a really cute yard. I estimate about $10k in supplies $15-20k if we hire people instead of doing the work ourselves (we've done quite a bit of this ourselves but I want a quick flip so would probably hire out the work).
Asking price is $110k however, the owner is a nice gentleman that owns the house clear and free and says he knows it needs more work than he realized (renters just moved out) and is willing to negotiate. He could easily get that or more if he puts it on the MLS.
I'm thinking of offering him $95k cash. However in order to come up with the cash I have to tap out all my resources.
$40k cash from sale of the house
$30k personal loan at 11% interest
$21K HELOC at 3.5% interest
$4k personal savings.
Total $95k
Reno credit card with a 17k limit 0% interest for 18 months with a 2% transaction fee.
Is this smart? I feel I can sell this house for MINIMUM $150k after the reno. I figured it out and I stand to make a MINIMUM of $20k even with unexpected costs and holding costs (taxes insurance and payments) and I feel it will sell quickly. Is this smart to tap out and use my finances in this way? I have a few other investors here telling me its a bad idea, too risky but they all have cash so they don't have to do this.
Other ideas? My back up plan is, I can always go to the bank and pull out a loan or a HELOC on the house after I have purchased it with cash. I was able to get a HELOC on the house I just sold because I had purchased it with cash.
Please! Any advice is appreciated!!
Hi. I can understand why some investors are saying it's too risky. I personally would not want to be all in on a single transaction with no cash reserve. Too much leverage can be scary. I guess it depends on your risk tolerance. I know you don't want to pass up what seems to be a great deal but maybe there is another way. Have you thought about partnering with another investor to share the risk? I would consider ways of creative financing that wouldn't require so much of your own cash/credit.
I have been unsuccessful at finding any partners or even any investors. Most of the people I know that have the money and are interested in Real estate already have their money tied up or have too much going on. I have been talking to friends, family and coworkers etc about investing and so far have been unsuccessful in finding any partner or investors.
Hello Maria,
Have you thought about contacting some private lenders in your area?
Best of luck to you,
Natasha
@Natasha Quiles what do you mean by private lenders? I could definitely go to a bank and get conventional financing. However, once I do that then I have to deal with an repeat appraisal when we sell it etc.
Originally posted by @Maria Vogel:
@Natasha Quiles what do you mean by private lenders? I could definitely go to a bank and get conventional financing. However, once I do that then I have to deal with an repeat appraisal when we sell it etc.
Why do you think getting a bank loan would impact your sale in any way?
Hint: It won't...
@J Scott I recently purchased a house and I put 20% down and another $5k in renovations. with equity, I have about $50k tied up in that house. I have talked to a few bankers who said I could have trouble getting it to appraise for enough since I haven't owned it for over a year and it just had an appraisal and another banker said cash out loans are not typically great loans and I won't get enough cash out to make the closing cost and increase in interest worth it. Even though I have $50k in equity cash out loans typically only provide 70% LTV so refinancing with one will not give me much of my $50k and will just increase costs with closing and interest rate increases.
Another concern: My mom did a flip and the appraiser refused to appraise for much more than the original purchase price despite renovations because he had just done an appraisal 3 months earlier. We had a similar experience with our primary residence. We did a $60k remodel and when we refinanced it 1 year later he only increased the value by a small amount because the square footage didn't change. I was told they don't really look at the finishes when appraising-he compared our home to homes that were not remodeled and were much smaller and some were not even in the same area. Unfortunately, in both of these cases the repeat appraisal was done by the same appraiser that did the first one-this may be the problem but you can't choose your appraiser. But this is a concern-it would be nice to avoid that first appraisal.
I might have found a solution for my problem though! I just talked to the sellers and they may be willing to owner finance! I don't know why I didn't think to ask this before!!
@Maria Vogel by private lender I mean a person or people that loan money for the purpose of funding a real estate transaction. It's usually a lot faster than dealing with the banks.
Originally posted by @Maria Vogel:
@J Scott I recently purchased a house and I put 20% down and another $5k in renovations. with equity, I have about $50k tied up in that house. I have talked to a few bankers who said I could have trouble getting it to appraise for enough since I haven't owned it for over a year and it just had an appraisal and another banker said cash out loans are not typically great loans and I won't get enough cash out to make the closing cost and increase in interest worth it. Even though I have $50k in equity cash out loans typically only provide 70% LTV so refinancing with one will not give me much of my $50k and will just increase costs with closing and interest rate increases.
That's for a refinance. But, you said above that you want to do a flip. When you do a flip, you shouldn't have to refinance, and there are no appraisal issues.
I think you're confusing flips and holds...or perhaps I'm misreading your above posts...
So this new property has been a rental and now it's coming to market right? The current owner holds it free and clear but knows it needs lots of work?
I would try to partner with him. See if he will be your bank for 6 months or a year. Perhaps you can talk him into holding the note longer term. I've even had luck lease optioning property like this while I did renovations then flipped the property.
Private money is attractive here too. Expand your sphere of influence, build the team to make the deal and set up the next one. I'd make this guy an offer as I've outlined....worste thing he can say is no.
I would recommend trying to get the house cheaper and trying to use as little of your cash as possible.
If you buy for $95k, pay $20k for rehab, and sell for $150k, that only gives you a gross profit of $35k. That doesn't even return the $44k cash that you started with.
Originally posted by @Maria Vogel:
I just sold a house and I want to do a flip to increase my cashflow so I can get into multi-family.
I made about $40K on the sale of the home.
Background on the market: Most houses here under $200k on the MLS are under contract within days (sometimes before they are even doing showings). Even total dumps are selling quickly if they're priced around $150k.
I found a FSBO 2 bedroom with a HUGE heated shop (very big selling point in this area) similar homes that are on the MLS like this are selling for between $140-160k without any reno. This house would be a big reno but nothing major. The roof, siding, heat system foundation are all good.
It needs a new bathroom, new kitchen, doors, lighting new flooring and paint. Maybe a new fence. It has a really cute yard. I estimate about $10k in supplies $15-20k if we hire people instead of doing the work ourselves (we've done quite a bit of this ourselves but I want a quick flip so would probably hire out the work).
Asking price is $110k however, the owner is a nice gentleman that owns the house clear and free and says he knows it needs more work than he realized (renters just moved out) and is willing to negotiate. He could easily get that or more if he puts it on the MLS.I'm thinking of offering him $95k cash. However in order to come up with the cash I have to tap out all my resources.
$40k cash from sale of the house
$30k personal loan at 11% interest
$21K HELOC at 3.5% interest
$4k personal savings.
Total $95k
Reno credit card with a 17k limit 0% interest for 18 months with a 2% transaction fee.
Is this smart? I feel I can sell this house for MINIMUM $150k after the reno. I figured it out and I stand to make a MINIMUM of $20k even with unexpected costs and holding costs (taxes insurance and payments) and I feel it will sell quickly. Is this smart to tap out and use my finances in this way? I have a few other investors here telling me its a bad idea, too risky but they all have cash so they don't have to do this.
Other ideas? My back up plan is, I can always go to the bank and pull out a loan or a HELOC on the house after I have purchased it with cash. I was able to get a HELOC on the house I just sold because I had purchased it with cash.
Please! Any advice is appreciated!!
No reserves is a risky business. Instead of tapping all those resources I would suggest trying to find someone to partner on the deal with you. It seems like a good deal and with some networking I am sure you can find a qualified partner. Maybe partner with a GC and hen you don't even need to pay anyone to help 🙂
Asking for owner financing should always be the first question. If they say no to owner financing, Next thing to say: Well if I have to pay you cash, that means It will be a much lower offer.
@Larry H. I think your addition is off...if I buy for $95k pay $15k for rehab and sell for $150K I will get by an extra $40k cash (profit) when I'm done PLUS the money I spent ($95k plus rehab) because I will get $150k total ;)
@J Scott I am not confusing a flip vs a rental. I'm afraid we will have the appraisal problem when we sell it after its flipped (The new buyers won't get it to appraise for enough more than the original appraisal because not enough time has elapsed) This exact scenario happened to my mom and I've heard from other investors it can be a problem. One person told me you should wait at least a year but we had an issue even after a year because it was the same appraiser.
Firstly, I did offer a low offer in cash. He came back and said it was too low but they want to negotiate and are willing to owner finance!!! YAY! I told them I would offer more if they will finance and asked for a counter. I haven't heard back. I hope it works out!!! Its a great deal and it would be so perfect if he owner finances it. Even for a few months while we renovate!
Thanks for all your input and advice-you guys are invaluable. Please help me with this private money thing. I am not sure how you "find" private money. I have talked with a few people that I know who are investors and they are all busy with their own projects. I have talked to almost all the friends and family I know that may have some savings or be interested in investing and no one has money or they aren't interested. How do you find private investors? Someone suggested a GC-how would I go about finding one? Call up general contacting companies and just ask them? I need to find out how to do this!!
The same question with a partner-I don't know anyone who has money and wants to invest in real estate or has a vision for it to partner with. I have tried to connect with a few locals on here but haven't heard back from anyone. There are no real estate clubs or groups around here.
I am a nurse practitioner so I work with a lot of doctors but how do you approach someone and say "Hey do you have money-do you want to invest?" without it sounding like a scam? I've tried with the ones I am closest to and have had no luck! One doctor I work with used to have a lot of rentals and a was very successful with real estate in the past. I've asked him for "advice" in hopes he show some interest but he has not indicated he has any interest in investing and has warned me that it can be a huge headache. I met with another doctor who is retiring and told hm what I am doing and my plan and told him I need investors and he told me I should focus on my career in medicine and forget the real estate thing. (not very encouraging!)
I met with another prominent investor in the community who was very discouraging and almost seemed to look at me like competition. He didn't seem willing to share any "Secrets" and said the market is crashing again and we shouldn't invest. The others I've met with were wonderful but are very busy with their own stuff right now. Its frustrating. I do live in a small rural area-there is some wealth here but in general its a poor community.
Thanks again for all your help and please share any pointers you have about getting private money or investors.
Maria Vogel why don't you wholesale the property?
Originally posted by @Maria Vogel:
@J Scott I am not confusing a flip vs a rental. I'm afraid we will have the appraisal problem when we sell it after its flipped (The new buyers won't get it to appraise for enough more than the original appraisal because not enough time has elapsed) This exact scenario happened to my mom and I've heard from other investors it can be a problem. One person told me you should wait at least a year but we had an issue even after a year because it was the same appraiser.
This issue is going to be the same regardless of whether you buy with cash or with a loan. The appraiser is going to have access to your purchase price and he's going to make a determination of whether you sufficiently added enough value to justify the new price since your purchase. Again, doesn't matter if there was an appraisal prior to your purchase or not -- your purchase is of public record and that's the only information the appraiser needs.
So, purchasing for cash provides no value in this respect.
@Jen H. I've never wholesaled-good idea! How does that work? How much can you make on doing something like that? Can you explain? I understand the general idea but not the details.