HELP!!! About to loose money in a JV deal..

34 Replies

Hello BP im a newbie in RE and i entered in a JV contract with another newbie to purchase a historic SFR in Fairmont Heights MD using a hard money lender and closed on October 2018. Our JV agreement is im paying for the down payment and closing cost its about 45k total and he will do the overall work for the project.

Fast forward he finished the renovation and listed the property on May and up until now we do not get any offers and our contract with the hard money will due end of December. You can see the detail of the property price history on zillow from 399k last May down to 285k this month. Im in panic mode right now for im about to loose a lot of cash for this project.. any help or advice for this will greatly appreciated.

address is 612 60th place fairmont heights MD.

Thanks!

PJ

Our purchase price is 170k for the property and 84k for the renovations. 12% interest plus 5k for the points and closing. I gave 40k for the downpayment and 2500 for the appliances and 2500 for some interest payments. We plan on refinancing it but my JV partner says its not an option because the appraisal for the property is only 307k and 40k closing cost. We are going to meet today and discuss other option.

$170 + $84 + $5 + $25 (interest guess) + (what am I missing?) = $284. If you sell for your current $285 price, your losses after costs may be narrowed...and the $307 appraisal suggests it will sell for that amount.

Not sure what the $40 is for...refinance closing costs are not that high.

We make decisions with the best information we have, take action, learn, and pivot going forward.

@Pedro Jose Villaroman

I just looked at the listing on Zillow. 2 things from my perspective-

1) Starting at $399 obviously was a bad idea, and a turn off at this point seeing it on the market so long and dropping $115k, that’s huge.

2) you are limiting yourself to cash and conventional loans. Why? If the house is all redone, should pass FHA/VA with flying colors.

@Matt M. So I talked to my JV partner and it seems we only have until end of this month to sell the house so we are really in a very bad situation in finding a buyer.. My partner is the one whose handling everything with regards to selling the property and its under his LLC name. We are also looking for wholesaler just to get the 285k since we are already in a loss for sure.

@Mike Dymski The $40k will be 25k additional to payoff the loan and about 15k for the closing cost.

@Kris L. What went wrong here is I didn't make proper due diligence on the property before we go with it. and probably the listing part of it we should not put it too high like what matt said.


Your lender does not want to foreclose and they do not want to lose money either, @Pedro Jose Villaroman . Have you spoken to them? The listing looks terrific and if fairly priced, there is no reason this house shouldn’t sell.

Meet your lender at the house with your partner so they see what you’ve done and then go to lunch. Show them that the house is now fairly priced and should sell. I don’t see any reason why they wouldn’t give you an extension of your loan. This would be in everyone’s interest.

(Separately, and these are probably rhetorical, but how did your lender miss a $100k+ overestimate when they made the loan? What did they think the ARV would be? How did they think you would make a fair profit when they made the loan? Or did they?)

You're using Zillow to determine the property values? Bad idea, get an appraisal done on the property. Then you can price it appropriately.

Hmm..given time is of the essence here, can you explore other listing services?  https://moneyinc.com/the-top-five-ibuyers-in-the-real-estate-industry/

I was also going to suggest, as a potential interim solution to help you and your partner on the carrying cost, is to explore short term rental.  At quick glance the going rate on neighboring properties don't look too promising, and the turnover costs and the hassle of posting & marketing, could be a downside.  

Originally posted by @Alan Grobmeier :

Nothing like jumping into the ocean & not knowing how to swim.

@Pedro Jose Villaroman , what possessed you to make this your first deal?

 @Alan, now be nice to the man. ;-) I'm sure you made money on ALL of your investments so you can be charitable to someone in distress.

Account Closed, 1st rule is to not lose money.  ;-)  I was stuck w a house I didn’t want for about 10 years.  Still make 100k when it was all said & done.  There is no realized loss until you sell.  ;-)

Originally posted by @Alan Grobmeier :

@Mike M., 1st rule is to not lose money.  ;-)  I was stuck w a house I didn’t want for about 10 years.  Still make 100k when it was all said & done.  There is no realized loss until you sell.  ;-)

Heheheh. So true.

 

I'm sorry this is happening to you but why on Gods green earth did you think to yoke up with another person in a JV deal that is ill equipped ,inexperienced,and a newbie like yourself ...,Especially with hundreds of thousands of dollars on the line ?

“When the blind lead the blind .. they both go into the ditch “

Did I miss this info?

Since getting your asking price reduced to a reasonable amount (probably that $300k) how many showings have you had? How many total and what was the feedback? Obviously your initial pricing strategy was a disaster and you most likely lost on some deals due to that. With that said if it is now priced correctly, someone should be looking/interested.

At this point you may be fire selling and losing money. It happens, but it sounds like you don’t have many options. There are some lessons to be learned here however if you plan to move forward doing this.

@Brian Pulaski we had a lot of showings and a lot of people see the house. They love what they see but not the cost at that time. Now listed for 285 we had offers for 275k and asking for some help for closing too that we cant afford to do.

@Helen C we have applications for rental for 2350 a month but the problem if the lender is asking us to pay the loan.. im also thinking if i can just takeover the loan to my partner and mortgage it as investment property for rental. Since im losing 45k in this deal should i just purchase the property for myself?

Looks like you have a couple options.  1: do nothing and continue to bleed cash.  2:  Lower your price a little, lose some cash, move on.  3:  Refinance, rent it out and try and sell again in a few years.  If it cash flows that might be your best option.  Granted it could take a decade or more to get your money back with just cash flow.  Hopefully during that time the house appreciates (always a gamble and never guaranteed).  If it does you might consider selling at that point or if the renter shows interest maybe they might want to buy it.

You are not alone many people get started in real estate this exact way.

I lost my first house for this exact reason.  Paid way too much.  Couldn't even rent it for what the mortgage was and I couldn't work out anything with the bank.  I lost everything.  Over 30k in that deal.  Stuff happens, we grow, move on to bigger and better things.

A couple questions to ask yourself.  What did you learn from this?  What would you do different?  What will be your backup plan for the next one?  Everyone makes mistakes and anyone says they don't is only fooling themselves.

what would be your total investment if you had to keep the house? Cash invested and total loan balance?  

@Pedro Jose Villaroman ONE REASON I do not advise to start with a flip! Too many risks. Sad you are in this position. 

SOLUTION: Listen if I were you I'd put that property on the market as a rental and try to find 3-4 young professionals who are friends to rent the rooms out and refi into a conventional product so that you can pay your HML off and stop the bleeding!

In a few years maybe when the market picks up PLUS some appreciation maybe you can get the initial listing price.

@Chiedozie Orabile , I became a 'reluctant landlord' in 1996, at the bottom of the housing market in Bakersfield. Got divorced, got house. House was worth 10k less than we paid for it with no end in sight. Was able to rent it out for YEARS. Same family.

The ONLY thing that saved me was the RE bubble.  PPL from LA were investing in Bakersfield in droves.  Prices were being driven up beyond belief between 2002 - 2005.

I am an engineer by trade, not an economist.  But I do know that ppl making $15 an hour can't afford a $300k house.  Even with fuzzy math.  I bailed, at almost the very top, and sold.

My 'returns' were basically compressed in the 2002-05 time frame.  Prior to that I would have either been break even or loss.  

Had I, for some reason, kept that house thru the downturn, I would probably have gone underwater for a 2nd time. :-(

Hope my explanation helps.  ;-)

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