Rental Property Investor · San Jose, CA · Member since 2015 · 57 posts · 12 votes
Hello BP Community!
I'm still fairly new and have a deal that I am considering. It is with a local flipper who is quite experienced. The deal is to lend him $200K for the duration of the project with the expected duration being approximately 6 months.
My goal is to learn and make a profit while doing it. This project will be with a very experienced rehabber to take care of any hiccups that we could find during the process.
I am offered full access to the project and property, so I can decide the amount of my involvement in the project. We will have all documents on a Google drive, as well as weekly pictures. That way I can have all of the access available for you to learn as much as possible during the project, while still making a very nice return on my money.
Two concerns: What have you done to track his credit, liens, background and track record on flips? His $752K sounds like hard money @ 9+% interest possibly using your cash as part of hard money agreement. He probably denies it.
What makes you believe the valuation is there? I think kitchen, living room wooden ceiling, and popcorn ceiling, vinyl flooring can use more update. If the home has the correct address, why it took 44 days to get into a contract? Market too slow for this 1954 vintage with updated home? In South Bay it would take ~5 days with multiple cash offers. If it took 44 days to market by adding more cosmetic and raise the asking price 1.25M w/o increase the size of the home, how long it will take you to market in 2018?
All the data I have looked at suggests San Mateo, Santa Clara County real estate median price reached to a peak sometime back in 2016. I know East Bay has lost more jobs than the rest of the SFBA. I read Leslie Bandy comment above and can not agree any more about valuation and rehab cost.
Except one client of mine who goes to the most desirable neighborhood who claims gains. All the rest flippers have stopped rehab homes. Risk is the primary concern.
This home of interest is one house away from I-680 exit ramp and 6 houses from S Main Street. I suggest you pay a local realtor to pull 5 or 6 homes of similar sold size and style, 6 still on the market. As for searching for your partner. You can ask. If he is hesitant you can find it on line by paying a fee. He should share his track record, profit and you can decide how reputable he is.
You know most neighborhood home prices have stalled. Using March 2017 does not guarantee it will stay at that level. "Outstanding property solutions" was the company he is supposed to be affiliated with. The website is very new.
Hard money lenders make all their borrowers sign personal guarantees, so why not?
If you can verify all his rehab costs, ARV, and experience, and the CLTV is no more than 75%, and you're not underwater from the get-go (i.e. total loan amount < as-is value), then I would be comfortable doing an investment like this. You can avoid being underwater by not putting in all your money up front and give it to him in draws as he completes the work and adds more value.
I don't mean this in a way that sounds harsh. Learn your market and you wouldn't ask us this question. You would already know the answer. If you are asking BP to find out if it is a good deal, you are risking your money in a dangerous way.
Hi @Sam Shueh, thanks again for sharing your insight. I agree, the house is not as appealing since it is quite close to a freeway on-ramp. Thank you for your thoughts and advise on local comps.
Hi @Ian Walsh. Thank you for the post. I understand your sentiment and I appreciate your warning. Proverbs 11: 14 says, "Where there is no counsel, the people fall; but in the multitude of counselors there is safety." Proverbs 15:22 says, "Without counsel plans fail, but with many advisers they succeed." I recognize that it is ultimately on me to do my due diligence and vet the deal as well as the flipper and his team. But I also recognize that I'm new in real estate investing and so I tremendously value this community of advisers. Me asking questions here is part of my learning and evaluation of the deal, but it's not the whole. Thank you for your contributions to this community.