Getting ready to do my first solo deal

Starting Out
12yFollow

Getting ready to do my first solo deal

Roman Pak
Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes

Over the last several months I've spent a significant amount of time reading books, BP forums and almost anything I could get my hands on, to prep myself for my Real Estate journey.

I've finally lined up a hard money lender that is willing to work with me on doing a flip in the north Chicago suburbs. They are requesting that we do the deal and split all profit 60/40. They get the 40. They are willing to lend me up to $80K with cost of rehab included.

I have a great real estate agent lined up and have several options for RE attorneys.

Does anyone have any recommendations or insight on doing a deal like this?

0Reply
68 views

Most Popular Reply

Mirinda Lowe
Real Estate Investor · Los Angeles, CA · Member since 2011 · 31 posts · 13 votes
12y

Sounds like that might have been a good thing though. You certainly seemed to be concerned that you were overpaying, might not make much money, and have a bathroom count that may be difficult to sell. I know you get anxious to do your first deal you want to jump at something and get going, but don't talk yourself into deals that don't seem like wins. You'll regret it.

1Reply
See this reply in the discussion

68 Replies

Jump to latestLatest
  • Timothy Riley
    Investor · Chicago, IL · Member since 2013 · 451 posts · 96 votes
    12y

    Congrats!!!

    I hope you get some great reccomendations - keep this thread going on your progress.

    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    Thanks! @Timothy Riley

    0Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    12y

    @Roman Pak - Is the 40% on top of interest?

    That sounds pretty decent to me. I spoke with a few flippers about providing capital and on an equity split I was looking at 50/50

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    @Brie Schmidt No interest, pure equity split.

    0Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    12y

    @Roman Pak then that sound like a decent deal on your end. As the money provider I was offered about 50% from a few rehabbers

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    @Brie Schmidt yea I guess I expected them to ask for more. If its OK with you I'll keep you in mind for any future projects.

    0Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    12y

    @Roman Pak well we decided to continue with our buy and hold strategy instead of investing with rehabbers.

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    0Reply
  • Wendell De Guzman
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    12y

    Yeah - agree with @Brie Schmidt 60/40 (you/them) is not bad. As a private lender myself, I sometimes go with an equity split on top of interest (like 12% interest + 25% profit). Depending on how fast you turn around the project, it might be better than 60/40...

    0Reply
  • Larry Smet
    Flipper / Rehabber / Real Estate Investor · Toronto, Ontario · Member since 2012 · 392 posts · 77 votes
    12y

    Wow, nice job @Roman Pak

    That's more like a partnership, rather than hard money. Typically you have to pay points up front and then high interest with hard money.

    Like @Brie Schmidt said, the common formula in my experience is to split profits 50/50 with a funding partner like this.

    You're in a great position not paying interest (only profits) since you won't need as much of a spread in your first deal to make it work.

    Keep us posted!

    0Reply
  • Nick Wing
    Real Estate Broker · Los Angeles, CA · Member since 2014 · 97 posts · 30 votes
    12y
    Perfect deal! As a private lender, we do very similar deals. You aren't risking anything (money wise) and you get to make profit.
    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    Found a few properties today, that seem like candidates, however, they are a bit more expensive (asking price) then I expected, especially for the condition of these homes.

    Does anyone have a rule of thumb for an ROI figure? What should I be aiming for?

    At asking price, only 1 property makes a tiny ROI (like 5%). All the others are negative (by a lot).

    I have to get the properties at a significant discount to get my current ROI percentages, which range from 70 to 117%. Is this wishful thinking?

    0Reply
  • Larry Smet
    Flipper / Rehabber / Real Estate Investor · Toronto, Ontario · Member since 2012 · 392 posts · 77 votes
    12y

    Hey @Roman Pak

    A lot of people follow the 70% rule (if you search on biggerpockets you'll find many posts on the subject) when it comes to flipping. The other rough way to approach it is to subtract 10% from your ARV (to account for realtor's fees and closing costs - i.e., money you'll never see), subtract the rehab and holding costs - then subtract the profit you want to make - that leaves you with your maximum price you'd be willing to spend. Looks complicated when it's written into a sentence but it's very simple on a spreadsheet :)

    Remember - those are rule of thumb and they won't work exactly in every market, but they're not bad for a quick analysis. Also, don't forget to factor in a contingency into your rehab budget - they always cost more than you think at first.

    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    @Larry Smet Good info, thank you.

    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    Status Update:

    On Saturday I put an offer in on a homepath property. Asking was 169900, I bid $153K. Yesterday, got a reply from them asking for highest and best bids due by noon today, and they said it was a multiple offer scenario. I upped my bid to $165K. Right choice, should I have gone higher? Although, any higher and I may not make any money on it, or very little.

    Seeing as this is my first flip, I'm finding it hard to estimate renovation costs. I had a close friend of mine tour the property with me and he estimated reno costs at about $20k. My agent, who also does flips and invests in real estate, estimated the reno costs at about $18K. I've budgeted $23k when running my numbers.

    My other point of concern is that most homes in the area are 3/2, and at least half of them have basements. This property is a 3/1, and no basement.

    This property is in a nice area, highly desired for its starter homes and mix of good schools and great neighborhoods.

    Although the numbers look good, at the moment, why do I feel like I may totally screw this up?

    Ugh.

    0Reply
  • David Sanchez
    Clayton, CA · Member since 2014 · 32 posts · 19 votes
    12y
    Hi Roman Pak , I don't know specifics on your deal or locale. However, I can tell you that selling a 3/1 vs. a 3/2 can be much harder, and in my market (expensive California), the lost bathroom would cost me about $20k on a starter &400-$500k home. Just double check your comps and find some 3/1's to make sure you'll still make enough cash to make it worth your while. Nothing like losing money or barely breaking even on a first deal.... Good luck, keep us all updated! -David
    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    UPDATE:

    Just heard that we did not get the property. Bummer!

    0Reply
  • Mirinda Lowe
    Real Estate Investor · Los Angeles, CA · Member since 2011 · 31 posts · 13 votes
    12y

    Sounds like that might have been a good thing though. You certainly seemed to be concerned that you were overpaying, might not make much money, and have a bathroom count that may be difficult to sell. I know you get anxious to do your first deal you want to jump at something and get going, but don't talk yourself into deals that don't seem like wins. You'll regret it.

    1Reply
  • Michael Lee
    Investor · Las Vegas, NV · Member since 2014 · 50 posts · 7 votes
    12y

    yea I agree with @Mirinda Lowe it is way better to lose a "deal" that you might not have made any money on. Do not ever spend retail. At least now you still have the money to invest.

    Are you just focusing on REOs @Roman Pak ?

    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    @Mirinda Lowe I guess I was kind of talking myself into it. It's just so hard to find a property in my budget and in this area. Most investors are buying in the $200-250K range in my area.

    I'm not necessarily focusing on REOs, it's just the way this worked out. I figured the first deal should be done in the "traditional" way. Find a property on the MLS, fix and flip @Michael Lee

    0Reply
  • Michael Lee
    Investor · Las Vegas, NV · Member since 2014 · 50 posts · 7 votes
    12y

    Ah I see. Sometimes you have to think outside of the box @Roman Pak For example if most investors in your area are buying in the 200-250k, I would suggest invest in the 100-200k range where the marketplace is not as saturated with investors. You can do this by doing direct mail and talking to your friends and family to see who is interested in a fast sell. You do not always have to go through the MLS as most houses on there are retail. This is definitely not something you want to rush into although if you do find a deal by all means jump all over that. Hopefully everything works out for you.

    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    Thanks @Michael Lee I am concentrating in that $100-190K range. I think you are right about finding deals off the MLS. I'll have to look into direct mail and perhaps reach out to wholesalers in the area, if there are any.

    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    So I put in two offers in on Wed. afternoon on two properties. 

    One of them is in a really hot area for real estate right now. Homes sell in a matter of a week or so. The asking price was 210k (on the MLS). The house has a TON of renovation to do. Part of the house is sinking, and the rest of it hasn't been updated AT ALL since 1976 it looks like. My contractor estimated (with a buffer) renovation costs would be 45-50k. So, I offered $136K. Just heard back from the agent that the offer was rejected, and no counter offer was given because it was too low. Bummer.

    No response yet from the other property. Which was in a not so great area, and the house was in just as worse shape, except the size of rooms was absolutely tiny, hard to image how to fit a bed in there, much less anything else. Offered 90K on that one, although asking was $190K. 

    Am I being crazy, or are the banks really trying that hard to play the momentum of the housing recovery. 

    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    Forgot to mention, the rejection of the first property, came with a note that said, and I quote "The offer is too low to counter, and if you plan on submitting another offer, make it a reasonable one."

    0Reply
  • Jonathan K.
    Investor · Scotch Plains, NJ · Member since 2014 · 105 posts · 50 votes
    12y

    @Roman Pak  Sorry you didn't get the deal....I'm sure you'll land one soon enough. Just make sure in a similar situation that you get multiple estimates on your potential reno plans, as that represents one of biggest risks to your deal's success.

    0Reply
  • Roman Pak
    OP
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    12y

    @Jonathan K. Thanks.  I understand the importance of getting multiple reno quotes, but in a fast moving market, sometimes I don't have the luxury of bringing in multiple contractors or even looking at the property more than once, for that matter.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free