Naperville, IL · Member since 2016 · 25 posts · 6 votes
Hello BP,
I am a newbie in REI and I live in Chicagoland. Just recently signed up with BP. So far it's been great! Trying to study hard and read forums as much as I can. I decided to start my REI career with fix & flip properties since it would build my account faster than buy and hold. After some flipping I will be looking to get into buy and hold single, duplexes, triplexes, quads and maybe do an occasional flip. Having said that, I need help in finding those flip properties and figuring out how the deals are done from start to finish. So, I came across the posts from other new members looking for help. This one investor offered to help us. So, I emailed him. He says that he will teach me everything how to find properties, negotiate, structure the deals, exit, etc. from start to finish. He wants 50/50 split after the closing on fix & flip property and $5k for buy and hold property. The whole fix & flip deal would be financed by my money and it's around $80k. Just trying to get an opinion from you guys, experienced investors, if those type of mentoring deals common and I won't get burned? Want to get into action as soon as possible, however, that's all the hard earned money I have and don't want to loose it all on my first deal. Any advice would be greatly appreciated!
People offer this service?
I do this everyday for free. ? I didn't know this was a service. All I have read is that it's a scam help me get back my money. This seems to be structured differently.
So he is your JV in terms of showing you the ropes? But you fund the entire project?
And he makes a fee to rehab and 50% of the profits?
Ouch. You need a mentor not someone to take advantage of you.
If you can vet the investor and know he does have experience, then this is a great deal. I talk to a lot of new investors that think they should do it alone so that they get ALL the Profits. They can get all the losses also due to lack of experience. What usually happens is they spin their wheels and never actually do a deal. So, I applaud you for even thinking this way.
If the mentor is real then you are lucky to have someone to help you on a first deal.
It sound like he is real. I am filling out his quiz/ questioner so he can assess my situation and my needs. Should be meeting with him in couple days. I don't mind paying the guy for the help, except I don't want to overpay as well (like most of us :)).
Tom Kairys Vet this guy really good. You will still be held accountable for all losses. Trust but verify everything. If he's for real get references. The fact that he contacted you is a huge red flag to me. If he's that good why isn't he doing it for himself?? Then he doesn't need to split or settle for half the profit. Sounds to me like a guru. Any body that's good at fix n flips would be doing it on their own and too busy to help a new guy. Running any business is like riding a bike. I can tell you how to do it but you still can't ride the bike. If I put training wheels on it likely you will still fall when I take them off. The best thing is to make sure you don't get hurt to bad when u fall. I.E. Get a small property in a good area. For your rehab do cosmetics. Paint, flooring or doll it up a bit. Nothing serious. Keep it simple. If you get all your money back plus holding, buying, and selling cost consider it a winner. Build from there. If nothing else rent it out for a bit. Get your feet wet before you jump in the deep end. Especially if you have any doubts about this guy. The most effective lessons you learn will be the ones you learn on your own. Just keep them as painless as possible. RR
Tom Kairys it is in the ballpark but a couple of things to consider...
What if you don't get the profit you were anticipating?
Worse yet, what if there was a loss, would you share that 50/50?
Is there agreement on the project timeline and sale price?
What if one partner wants out? Is there an agreed to buyout clause?
Try to vet the person at your local REIA.
Good luck.
@Tom Kairys how about: whether you Flip OR keep it, $5k maximum fee either way?
(Down to zero if in fact you don't profit from a flip)? [But, him approaching you IS a red flag]!
With $80k, I'd be recommending finding deals that would be BRRRR candidates ie. Buy $80k ones (including rehab cost) that after being Rehabbed and Rented out, would appraise for say $120k+, which means upon Refi, you can keep Repeating similar Buys with no more of your own money!
Thanks to all your comments and suggestions! @Gary Harris this guys name is Scott Steffek. He is on BP but not a pro member. Any suggestions how to vet him out besides REIA?
How you decide to proceed is up to you, but forget about vetting this guy, or any other person when it's structured in a way that you have to fund the fix & flip, and pay $5000 for buy & holds. (and I don't know him so it's not a personal attack on him).
Most of the time in this business, the only way anybody knows how someone operates is by having worked with them (whether they'd be contractors, agents, wholesaler etc.), and since his offer is to give you "know how," but you have to fund these fix & flips, you'd be out your money if something doesn't go as planned, which happens all the time in our business; especially for a beginner.
Find someone in your area (you can call bandit signs, google "we buy houses", get a list of people who've bought properties in an LLC) and call them till one of them says they'll mentor you. Most players I know won't even entertain the idea with a newbie, cuz frankly they just don't want to be bothered. But if you're tenacious enough, you might find a seasoned investor who sees themselves when they were your age and decide to take you under their wings. (I got a call from a wholesaler I spoke to a month ago. He sent me 2 deals previously that made no sense for me to even think about buying. But he called me again today because he has a short sale. So I asked him what he wanted for it if we decide to buy it. He told me an amount, but added that he'd like to learn how to do short sales. So I might consider showing him how all that works. Why? Because he didn't get discouraged from me telling him a month ago that those 2 deals weren't deals at all and still decided to call me today).
If they're the right person, they'll let you use all their resources, as long as you're willing to work hard and bring value to them as well. How do you, as a beginner, bring value? Learn the types of properties they want to go after and find it for them. Marketing for properties takes a lot of work, so if you can find those properties for them, they get free marketing efforts from you, while you learn. The right investor will fund all the deals (why would they think otherwise; you're just starting out).
This is the way I got started. I found the deals, learned the process from start to finish, they funded all the deals and I got part of the deal. Now I'm an equal partner in our company.
So think about how you can provide value and you'll find someone who'd be willing to work with you.
I don't know your current financial situation. So I think it's up to you, if you flip first or buy and hold first. If you have enough funds, you could 2 at a time. Flip one and hold one. Just don't spread yourself too thin financially! It would probably be best if we talked on the phone about it. Keep in mind too, that I can get you into a buy and hold property, with outstanding cash flow, for under $50,000. So I don't know if that helps you decide what to do. The flips would be higher priced. We would want to flip in a city where the property will move quickly.
As far as rehab costs, I rely on my contractor to calculate all of that. I'm fairly good at estimating the cost, but he always comes in to give me a "final" cost. He's not the cheapest guy on the block, but you get what you pay for. He's very honest, works hard and gets the jobs done right and on time. It actually took me 3 years to find a good contractor that didn't "screw" me or do lousy work! I would bet you could walk into a house and give an approximate cost. But that's what I have Rick for. He's the pro.
As far as the split on a flip, the 50% is paid on the back end, after the house sells. It wouldn't be fair or ethical, to ask for it upfront. If you think about it, by me getting paid on the back end, I have skin in the game too. I want to be able to put as much money in my pocket as I can, as well as yours, so that's also my incentive to find a good house to flip.
As far as a buy & hold property, you actually make out better financially than on a flip. We'll still put you through the entire training program, as if you're flipping a house. But we make our money through the sale of the property to you. So if the house sells to you for say, $70,000, I'd would most likely take a commission of no more than $5,000 at the closing table. The price you pay for the house, would already have my fee built in. I can't take much more than $5k, otherwise the house won't cash flow very well! There is also a $1500 fee to "micro manage" the rehab. I like to be there to make sure things are going smoothly. The benefit of having Rick (the owner of the rehab company), as my contractor, is that I can trust him. But I still want to know everything that goes on and make sure the work is done correctly. I don't want your tenant complaining that things are breaking down! But Rick has certified inspectors check everything out, to make sure the "equipment" will last, or he'll replace it.
So we can go either way. It just depends upon your financial situation and what your goals are. I can help you with that, if you'd like someone to make a suggestion on how to do this. Having specific goals are important.
I also have a "quiz" that I'd like you to take. It's not real long, but it allows us to assess where you're at in the real estate business. It also helps us develop a specific training program that will help get you into the business a lot quicker than on your own. That's the whole purpose of the program. We want you to learn as much as possible and as quickly as possible. For example, if you already know how to calculate ARV ( after repair value), we'll still discuss it, but we won't spend a lot of time on it. If you're not sure how to negotiate a deal or how to find one, we'll spend a lot of time in that area. This way, you become well versed in that particular area. So let me now where you'd like to go from here. We do need to talk about your finances and make sure you're comfortable with what you spend. So give me a call when you have time to talk. It's usually best if you text me about 30 minutes before you're ready to call and then I'll try to make sure I'm available and I'll text you back.
I hope I answered your questions and I look forward to working together!
Thanks,
Scott I asked him over the phone why would he split the profit when he can collect the whole 100% besides the fact that he cares about "giving back"? He explained that he has partners working with him, therefore he has some free time. Also, he offers to answer the questions newbies have about REI. So, he gets overwhelmed and doesn't get paid. So, that's another reason he came up with program so he can get rewarded/ paid for the effort. I know it's up to me what I'll decide to do, but from all the googling, interviewing him, and no money upfront, he sounds legit to me. I just wasn't sure if his fees are fair. We will meet with him face to face and he will show me some rehabbed properties he did and familiarize me with his progrom even more. Basically it's hard to find the mentor willing to help (if there is one out there). So guess we have to start somewhere. I'll keep you posted. Thanks to All!
People offer this service?
I do this everyday for free. ? I didn't know this was a service. All I have read is that it's a scam help me get back my money. This seems to be structured differently.
So he is your JV in terms of showing you the ropes? But you fund the entire project?
And he makes a fee to rehab and 50% of the profits?
Ouch. You need a mentor not someone to take advantage of you.
@Nino Alfano if I choose buy & hold propery then he in a sense wholesale property to me for $5k and charge $1,500 to micromanage the rehab because he cannot do 50/50 on buy & hold.
Micro managing a GC who he states it took 3 years to find one?
That basically means he's charging you 1500$ to use his contractor ?
Send me a message would love to help you not get taken advantage of.
I've structured deals like this with new investors before and it worked out fine. I'm primarily a wholesaler and have fixed & flipped around 20 houses. My deal was I sourced the property, handled all phases of the remodel (I didn't physically do the work but hired all of the subs) and then listed the property since I'm also a licensed agent. I didn't charge anything to GC the rehab nor did I collect a commission to sell the house. In addition, I guaranteed the first $10k in profits to the investor. If the property profited $9k, I got nothing. The investor got the first $10k, I got the second $10k and we split everything 50/50 after that. I showed the investor how to create a detailed scope of work that was then used to aquire bids from contractors. I had the investor present whenever subs came to give bids. It allowed him to see how I interacted with them so that he'd be able to do the next one on his own. He learned a lot about the basics of construction and what he should expect as a finished product. We did 1 deal like that and now he's on his own flipping multiple properties at a time. He would either pay subs directly or give me a few thousand here and there to keep the project going. Anytime I needed additional funds, I would send a detailed accounting of how the previous funds were spent including all receipts and we would continue. Structured properly, this can be a great way to learn if you can find the right person. I would set a minimum return to yourself and keep control of your funds at all times. If they have a problem with that, I'd proceed cautiously.
@Tom Kairys just lend him the money and do an equity split... make sure he puts some cash in.. If you ask him to put some cash in and he balks.. then I suspect he is like many others your cash his great idea....
this is fine for someone like myself who is in the business of financing these types of flippers... and can take a lump now and again... but if your starting out and you have a bummer on job 1 it can stop you in your tracks.. there are a lot of great rehab flippers out there.. most though don't talk about training you some of what was in that e mail to you was just too slick.. from my point of view anyway.
I'll start by saying you should do what you are comfortable with, regardless of the opinions presented.
There are no secret formulas to make RE investing work. You can do this without a mentor. What is really bothersome in reading the comments from the "mentor" is the idea that since he only gets a profit split if there is a profit he has "skin in the game". Any deal in the history of the world that allowed someone to profit without risking their own capital is a textbook example of not having any skin in the game. It is this exact incentive structure (losses are passed on but gains are shared) that has greatly contributed to the finalization and subsequent near destruction of the U.S. economy.
BTW, I lived not far from Naperville in Westmont and can tell you that the housing stock in your area presents no shortages of opportunities as there are so many old homes in great locations near Metra stations that need to be renovated and will sell for top dollar once they have a modern floor plan and nice finishes.
In my opinion you'd be better off doing a deal on your own and failing then paying anyone who claims to be an expert.
@Tom Kairys Above responses are definitely good advice, vet him as much as possible. My first deal in REI started out as a 50/50 partnership with someone who had a lot of experience, it's since grown into a much more complicated situation (for the better!) but regardless I would recommend FOR the partnership rather than against - you need someone to guide you through the marketplace.
Regarding Scott, here's his linkedin: https://www.linkedin.com/in/scott-steffek-5845332a...
and this is his company website: http://investinrehabs.com/ (looks to be still underconstruction however)
@Nathaniel Banks thanks for tagging me. I knew I wasn't the only one who had questions about the guy and his services. I just would rather have someone closer to home.
@Tom Kairys I sent you a colleauge request. My husband and I are active flippers and about to start two more. We have done numerous flips for last 3 years. If you are looking for a mentor IM me and see if we can assist.
