All Forum Posts by: Alexander Felice

 You have the right idea here. You want to research a little more about costs though. I know you were using hypotheticals, but I want to emphasize how much spread you really need.

selling costs alone are going to be massive, like 7-8% I would expect. so for a 200k home its going to cost you ~15k just to sell it.

Make sure to account for holding costs, if you finance this deal you're going to be paying insurance, interest, mortgage, taxes, etc. Be thorough with these figures. The longer you hold the deal, the higher these costs. You want to sell fast, which means you want to sell at or below market value if possible. if you do a good job rehabing, you may want to sell it for 195 to get it gone quick. This is fine, you just ahve to adjust your purchase price. 

rehab costs. I'm not a flipper, but I do renovations, these costs are almost universally under calculated by beginners (myself included). be thorough. 

as for profit, you can set it at whatever you want, but remember that if your numbers are off you're the one who loses. The smaller the margin you set for yourself the less wiggle room you have. 10k on a 200k house is only a 5% profit margin. That's 3k/month (on a 90day flip) before taxes. which brings us to:

The 70% "rule". This formula basically states that you take 30% as profit/holding/selling costs from ARV, then you subtract rehab.

so for a 200k house: 200*.7 = 140 - rehab = offer you make on the house. This isn't a hard and fast rule, but should get you a little better grasp on the process. 

for B&H it's a whole different conversation. 

I got your back bro! No coffee for me ;)

So, like Natalie said, you're approaching this backwards. You find arv FIRST. You need to find out what that home will be worth when renovated, then you subtract profit, and rehab costs. That's what you offer to purchase the house for. 

To be more clear, the reason you can't execute the method you're describing is because it essentially is trying to force appreciation, and market values don't work like that. The market is more systemic. For instance, if the house is worth 100k, it doesn't matter how nice you make it, it'll never be worth 700k. I use extreme examples but the logic applies to any figure. If the house is worth 100k based on comps, that's waht the ARV will always be worth. If you were to buy it for 100k and put 15k into it the house would probably still sell for 100k and you would lose out on the renovation costs.

With that said, this isn't to imply that people won't pay a little more for nicer amenities and such, but that variance is small (a few % swing). 

2 flaws I see here: 

you aren't accounting for holding costs, unexpected costs, and cost to sell (closing costs, etc) in your 23k profit

you are making a MASSIVE assumption that the home will appreciate 40% (100k-140k) in 3 years. I'm not saying this is impossible but don't spend 3 years counting on this appreciation in case it doesn't pan out. I would suggest a more reliable plan for income. 

the first question I would ask (based on absolutely no similar experience) would be:

What would you pay a bank to borrow the same capital? 6%? 7%? I would think your investors would want to earn at least a similar if not higher return than the bank would.

as for equity split I have no idea. 

I feel it can eliminate a few problems commonly associated with advance rent payments.

1. the temptation (that you shouldn't have, but just in case) to spend any of that money is now removed.

2. If the tenant was using this method as leverage, that option is now removed from them.

3. If you want to evict a tenant who has paid a year in full, it can get messy. This can simplify that process or even eliminate the tenant from trying to bail early if they know their money is locked up in escrow.

Obviously it's not a bullet proof plan, just a method that I have come across and wanted to share. I personally wouldn't take a year rent in advance so I have no direct experience with this. 

There are more downsides to upsides for this type of situation. 

I think the best way to do this is set up an escrow account between you and the tenant with your lawyer. He can give all the funds up front but your disbursements come at the regular time. 

This thread should be read by everyone who is a psychology major to show the effects of STOCKHOLM SYNDROME. 

OP, let it go man. You're getting assaulted by all angles for good reason. You need to get out, or get Andy out. Andy is either a hustler who is playing you like a fiddle OR he's incompetent and you guys are going nowhere fast (except broke). 

Lastly, you keep HOPING that this guy is going to come through. Well, that's not investing my friend, that's gambling, and ANDY IS THE HOUSE. 

I guess I'm in the minority when I agree with @Account Closed 

Newsflash, people do drugs. The VAST majority of them use them in a recreational manner and so responsibly, and they don't have bad addictions. 

If the guys is paying rent on time, then let it go. Don't interfere with someones life until it interferes with yours. Just to be clear, I'm not saying drugs are ok I'm just saying don't freak out over something until there is something to freak out over. a bit of cocaine found in a paying tenants home is not something I would worry about. If a problem starts to occur, then you know to proceed quickly. 

The story would be different if you found a bunch of junkies with needles in their arms, passed out, graffiti on the walls, and the house destroyed. That would be cause for concern. 

I had Usaa on my primary and called progressive and they dropped it in HALF (for the same replacement cost and coverage). I don't know anything about insurance really but based on my experience and what you're saying it just seems that rates vary wildly. 

From now on I'm getting at least 3-4 quotes.