All Forum Posts by: Arlen Chou

Orion Walker you might want to put some details of the property and the deal on your post. You indicate in your post that the owner is willing to finance if you put 20% down and you said you need $100k. Therefore, I assume the asking price is $1M. Is that correct? Your rehab number sounds low, but without more detail it is hard to say. Where is the property? Perhaps with more information, somebody here on BP would be interested in loaning you the money you need. Regarding the money itself, I see on your profile that you have a 4 plex. Do you have any equity in that property? Do you live in it and rent out the other three units? If you live in it and you have equity in the property you might be able to get a HELOC and use those funds for the deal. If you don't live in it, but if you do have equity, you might be able to use the 4 plex to get a hard money loan. At least with that property you will have a track record of income to show a lender. Do you have a personal residence that you could get a HELOC on? Personally, the hard money loan would be the last option. The interest rate will be high and you will need to find another source of financing very quickly. Good luck! Arlen

Hello @Amit M. unfortunately I won't be able to attend the SF meet up this Friday. However, I can shed a little more light on the deal. The finance problem on my side is a little different then what a single unit potential buyer might address. For me, I cannot get conventional financing because I would own 50% or more of the HOA, and I have been told that banks will just not fund such a deal. I have only spoken to 2 different lending institutions, but I was told the same thing. I have not looked into getting a portfolio loan on the complex yet, but I will in 2015.

From a single unit buyer, I was only told by the seller that he had several buyers that had to walk away because they could not get financing for such a small loan amount.  I don't know if this is fact, as I did not look into single unit financing from my banks.  It makes sense that most people who have $150k in cash would use those funds as a down payment on a larger property, instead of going all cash on a small studio.

Hope that helps,

-Arlen

Ryan D. Sell the FRS, I am sure you can easily find a buyer. Get an early body Scion XB. I have done full renovations of 500 sqft 1 bedroom units with this thing. I have put all the demo material from a kitchen (9 boxes) broken down into the back of an XB for a single run to the dump. Also, I have put all of the boxes of laminate flooring into it and the suspension handled it fine. It gets great gas mileage. Additionally it is low enough for vertically challenged guys like myself to easily load things like doors or lumber on a roof rack. I would still have the thing but it was t-boned a few months ago. The XB did a full roll over back onto it wheels. It was totaled, but the roof did not crush and nobody was seriously hurt. In my book the early XB is affordable, gets good gas mileage, has a ridiculous amount of interior cargo space and is safe in a major accident. -Arlen

Marjorie D. Your situation is difficult, but it can be overcome with time and a ton of hustling. You definitely need to increase income, so you need to more closely examine what tools you have to succeed. If I was young and in your position the first thing I would do is sign up with Uber and Lyft to generate additional "documentable" income. I don't know where you are with your current income, but adding additional income through the flexibility of work arrangements with these companies seems easy. I have spoken to several drivers and they really do make a killing and also retain a ton of freedom. At the same time you will be able to drive the city and become very knowledgeable about your "farming" area. Also you have to hustle on the search of properties. I live and invest in the SF Bay Area but I recently got a property under contract that most people over looked for months. On the MLS it was a 4 unit condo complex made of studios and a 1 bedroom unit. However, under closer examination it was actually a 5 studio apartment building that the owner legally converted to 4 condos. The issue for him is that he created a situation where potential buyers could not get financing because each unit individually was valued too low for a loan, but to high for the potential pool of buyers to pay in cash. In the end I was able to pick up the small complex with a $99k discount and seller financing. Because I have seller financing, I plan to flip the 3 studio apartments and retain the 1 bedroom unit, which is actually a duplex in disguise. My sales from the studios will cover most of the costs for the 1 bedroom, which I will retain as a buy and hold. For those who are wondering the property is in North Oakland, which is not a war zone and appreciating well. My point about this recent purchase is that the only reason I was able to figure this out and get the deal was because I actually went to the property to find out why it had not sold sooner and then created a solution for the seller. I identified multiple properties over several weeks and took the time to visit the properties that were of interest and look for the ones that had potential for creative solutions. There are ways to get in the door of the RE market in high value areas, but you have to be willing to "burn the candle" from both ends until you create a track record for yourself so others will invest in you and your skills. Good luck in your hunt and keep hustling! -Arlen

@Rick L. and put in new cabinets. If the rents in the area are low and renting without a dishwasher could be done, I would skip it until I had the budget for new cabinets.

However, if you really want/need one in that market I would look at the opposite wall.   There is a ladder in the first couple of pictures, is that wall blank?  If so I would consider moving the fridge to that side and building in a writing/computer table.  That way it will not have to match the other cabinets on the other side and it also gives you more counter space.  I would then move the the all 4 boxes that are to the right of the sink 36 inches to the right. Obviously you will need new counter tops, but you probably need to do that anyway.

This design will give the user space put things down on both sides of the sink and cook top. Additionally you will have created a kitchen triangle between your sink/fridge/range which is theoretically the best flow for a kitchen.

Post pictures when you are done.

Good luck!

-Arlen

Hello BP community,

I am looking for a specialist in the area of short sale purchases in the Oakland/Berkeley area.  If you have any recommendations of agents, please shoot them my way.

Thanks,

Arlen

@Weis Sherdel  if it is just a skin in the game issue, then it becomes much more simple, just base it on the numbers.  Straight up money investing is just that, a percentage of return based upon the amount put into the pot.

BUT, it is never that simple in cases like this.  All mistakes in partnerships start off with people saying "we will both participate EQUALLY". If you get a realtor, are you both going on the tour or just your friend.  How about when you start renovation, who will find the contractors? Who approves the paint colors or the fixture that you will use?  If the contractor calls with a problem, who answer the phone to make the decision? I can't imagine that you both will head to Home Depot to go look at sink faucets and towel bars, that would just be a waste of time.  Its a great idea that people will "share the work equally", but stuff comes up in daily life that just does not make this possible.  Additionally, if you create a process where both of you have to AGREE on every little decision the renovation process will take forever and increase tension exponentially. 

There are no "standards" for this because each situation should be viewed on a case by case basis.  On one project any given partner might have more or less time to commit.  If you are going to base the profit break down on funds invested then you need to outline, in detail, all of the work that will be required to make a successful deal.  At that point, the two of you can split that list and agree on what are equal work loads and make clear who is responsible for what.  It would be very important to outline what happens if one partner does not hold up their side of the work load.

If your friend wants more of the pie, then it just becomes a straight negotiation discussion.

Good luck!

-Arlen

@Jeb Armstrong 

• it will be hard
• yes, it will be risky, but that is part of becoming successful
• yes, it will be a full time job, if you want to be successful and you want to control risk

Can you do this at 18, only you can answer that question, but here are a couple of data points for you to chew on:

• Mark Zuckerberg created the Facemash when he was around that age, which was a starting point for Facebook
• Michael Dell started Dell Inc around that age

But it is important to keep in the FRONT of your mind when making this decision, both Zucerkberg and Dell did what the LOVED and made a success of it.  If you are doing this just because you don't have better options, then you probably should think much longer and harder about becoming a flipper.

Good luck!

Arlen

@Weis Sherdel  you cannot really quantify the percentage or dollar amount that your friend is going to put into this.  The operative word you should be focusing is "friend".  Things get really sticky when you mix money and work together with friends and family.  I have no idea how much experience he brings, but from your post it sounds like substantially more then you are bringing to the table.  If you are friends, don't discount his knowledge and compare him to some random real estate agent and contractor team that you have never worked with.  If you go down that road you are going to put your friendship in jeopardy, so you are better off just starting with strangers.  But then the question is would you even start if it was NOT your friend that was willing to partner with you.

It is all more about managing expectations for all parties involved.  Detail out what the expectations are for each party BEFORE you start anything.  That way it is clear what your friend is doing for his 50% share.  Be especially clear on who puts money into the pot if the renovation goes over budget.  

To be honest, it sounds like you are expecting him to do all the heavy lifting: find the deal, get the rehab done, sell the property AND teach you.  Assuming the property sells for a profit, you get all of your money back and you get half of the profits, basically all you had to do is write a check.  On the other hand, your friend will have some money in the game, but he is on the hook to MAKE the profit.

Take a minute and think about which is actually more valuable to a successful venture: the money in your pocket or your friends knowledge.  At the end of the process, you should have your money back, 50% of profits and the knowledge to go off and do this again on your own if you want.  If your friend is willing to give you 50% of the profit and do all the heavy lifting on his own, I think that this is a win for you. Keep in mind your last statement:

"I am trying to understand how to set up a partnership structure among investors based on the three essential elements of Time, Skill, and Capital."

It sounds like your friend has 2 of your "essential elements" and you only have 1.

But most importantly, having a clear written understanding of who does what BEFORE you start is key if you don't want to screw up your friendship.

Good luck on what ever you decide to do,

Arlen

Andrew Son there are ways to move money without hitting the "gifting" tax, but it does take time, creative thinking, two willing and active participants in the moving of funds and your ability to carry the initial cost up front or wit until you build up funds. Basically in standard practices, your father gets hit by the 1 time gift if he moves a large amount of money and has to claim it as such. However, there is nothing that says he cannot use his money in smaller amounts as he wishes. Does your daughter go to private school? Your father can pay for that without ever touching the gifting limit. Do you have car payments, he can pay for that. He could pay for all of your living expenses, clothes, food etc without ever worrying about "gifting". Basically he can pay for anything he wants and only gets dinged when he moves large sums that show up on a bank statement and needs to be explained. This allows you to keep your w2 income for the property purchase. But again, you would need to save money over time or deplete existing savings and rebuild it using this method. Hope this helps, Arlen