good afternoon investors. I need advice from some sharp minds. Here is my situation.
I recently partnered in with someone where we going to do a flip on a bank owned foreclosure property. We put a bid in at 63,500 and won the bid. The house was listed on the m l s for 70,000. we split the earnest deposit of 1000.00. he paid 500 and I paid 500.
He was going through a private money company for the funding, everything was going smoothly we were set to close in a week. we had a appraisal done on the property and it came back after arv 125,000. and it was listed for 70,000. I had three contractors say they could do the rehab on it for 8500.00 which was great. the house only needed new carpet in the bedrooms and I was going to put laminate down in the living room and dining room. paint the interior of the house, new kitchen window, new vinyl kitchen floor put down, replace 3 4 foot pipes that they stole which was a blessing because they could have taken a lot more but they didn't. also mud spackle and replace the sheet rock in one of the bed rooms. all three contractors said they could do it for he same price and I found a house that didn't need much work. A week before closing I get the email from my partner that was sent to him from the lending company that because the appraisal came back lower than expected, now we have to come to the table with forty five hundred more dollars. where as before they said we only needed 2,000. to close. the realtor showed the comps coming in at 135 to 140.000. so we didn't have the extra cash so we lost our earnest deposit and money wasted on the appraisal. I have no money to waste. My question is will a different lender such as a hard money lender look differently at this as being a good deal and will they finance 100 percent of the deal. I know most hard money guys only do 65 or 70 percent of the arv. As I said I have little money because my job closed down after 20 years of service. Can someone tell me if this is a good deal to flip because I think it is. Sincerely Deurward
If those numbers are accurate, this is a good deal. Its actually a really good fix and flip deal. $63,500 plus $8500 rehab is $72K vs. an ARV of $125K is 58%. That's actually an exceptionally good deal. The right HML might well have lent you enough to do that with little cash out of your own pocket.
But many HMLs require you to have some cash in the deal, regardless of the deal itself. Sounds like that's the case for your HML. That's not uncommon. You really do need quite a bit of cash of your own to do a fix and flip. My rule of thumb is you should have 15% of ARV plus whatever money the HML requires.
This post has been removed.
thank you to the three investor's that gave me feedback to my question. I so much appreciate it. My next question is based upon the response u guys gave me, is it feasible for me to apply for a personal loan to try to come up with some cash since the hard money lender won't finance the whole deal. I am killing myself trying to come up with a way to get the funding to do this deal because it is such a great deal. As I said I have very little cash but my credit is ok. What do u guy's think? Thanx so much. D
Flipping houses requires cash. I can almost guarantee you won't only spend $8,500 on the rehab if that's what you think it'll cost and it's your first one.
You need a money partner. Find an experienced guy and give him half the deal for bringing the money. This does a few things, first it gives you a second set of eyes on the deal, second it gives you the money for the unexpectrd. You can't be doing these things with no reserves. **** happens. How are you gonna make the payments? What happens if there's a major expense you don't know about?
Just reading that post makes me cringe, you think you're stressed now , wait until the rehab costs $5k more than you think and the payment comes due and you can't afford to finish the job or pay the holding costs.
Real Estate investing requires investment capital. This whole notion that you can do it with no money is crazy to me. I fund my deals at 100%, so I'm not saying you can't do it with none of your cash in, but I've got credit lines, strong backers and equity if I need to tap it. Had to pull $10k from my PL last week because I'm so far over on two jobs. I know I can get that anytime I want it, though.
I'd double check your numbers, you can't trust realtors, they make money whether you do or not, most just want the closing to happen.
Start calling "we buy houses" ads, hit the REIA, post the deal in the marketplace, etc. sounds like a fairly low risk deal, you should be able to find a partner. Giving up 1/2 deal for the experience and knowledge on your first one is worth it, add the deep pockets when you're broke makes it a no brainer.
thanx Darrell, i never looked at it that way. I appreciate your blunt but honest opinion. I never looked at how am I going to pay the holding cost or if the job cost 5 grand more than what was expected. I will take your advice and try and find a partner. Hopefully someone else does not snatched it up before I find a partner. Thanx again
You must be a BiggerPockets member to post on the forums
Join the world's largest, most open Real Estate Investing Community online, 100% free forever!