All Forum Posts by: Andy Sabisch

You are not seeing an anomaly as we have seen the same thing in our areas.  I think that a lot of wanna-be investors watch some YouTube videos, buy a book and jump in with both feet.  Then they find out that things cost more than expected, they missed items that seasoned investors would not have and things take longer than planned.  We know what could cost us and have professionals that come in and look at that specific area.  The general home inspectors are in 99% of the cases a waste of money as they use template software and often miss the items that are the unexpected costs.  I always love the caveat in the reports that says "Recommend you get an assessment by a professional" . . . hence the reason we have a plumber, a roofer, an HVAC guy and a foundation person we call on projects.

Recently we picked up a duplex that had been under contract and fell through over $2,000 between the buyer and seller.  The seller provided us with the home inspection report and it was 60 pages of fluff.  Torn screen, dripping faucet, burned out light bulbs in the basement . . . . but the inspector had missed the fact that the new furnace was only heating the first floor - the second floor with three bedrooms and a bath had no heat!  He also missed the obvious runs of knob and tube wiring that were hanging loose in the basement.  BY pointing these items out to the seller (an estate sale), we got the property for a discount and knew what we were getting into.

On the flip side much like you, we have gone to look at houses where other buyers (investors) were also present and they missed some key issues or under-estimated the cost to correct.  In two cases the property was listed a few months later for less than what they had paid for it after a demo had gone off the rails.  

Unfortunately advertising get rich quick training is inexpensive and you do not need many takers to make good money . . . I hate to see people that really did not have the money for the course get further behind after finding out that the information they paid for was of limited value.

Quote from @Derek Dombeck:

I like to bring in small self directed IRA or Solo 401k owners. I give them an interest only payment of 6% to 8% plus a percentage of the equity when I sell or refinance. I do this utilizing a participation note and mortgage. The same thing can be accomplished by selling part of the deal as an Option. This way, you are not taking on debt.

Derek, the problem with the scenario you provided is that like all other financing, interest rates are up.  People can get 5% to 6% at the local bank or credit union and even more by shopping around with a larger balance.  We have found that PMLs that were happy with 5% or so are looking for closer to 10% and in some cases more to fund a deal.  Until rates start to come back down, deals that would have been a grand slam 18 months ago are lucky to be a base hit.  Deals are there but every 1% you add to the interest or percentage you give up in equity makes the deals harder to make work.

Not the optimum position to be in on a property . . . . did things change in the project that have your numbers where they are; i.e., did the market drop in terms of ARV or did your reno budget go over estimates? Remember, you make your money when you buy not when you sell so hopefully you are looking back over the entire process from analyzing the purchase to the reno phase to see where your profit went. With that, the interest rates have totally changed the landscape when it comes to selling, buying and renos. HML costs can eat up profit in a heartbeat when you have a delay in getting material or labor is hard to get on the job. More people are opting to stay where they are and fix up their place rather than sell and buy at the higher interest rates which then tightens the trades availability even for us with a history with them.

As far as your current situation, refinancing a non-owner occupied property with the balances you have will be about a break even proposition and that is excluding the $190K you have into the project.  With interest rates staying up there for probably the next 12 months at least, do you see the market turning and the property increasing in value in that period?  If not, I would treat this as a lesson, sell and move on to the next project incorporating the lessons learned on this one.  Flips are about profits (which you do not have) and rentals should be about cash flow and invested capital (which in this case will be far less than what you could make on a CD today).  As the saying goes - "Damned if you do, Damned if you don't" - so with neither option being where you want to be, getting out from the project and learning from it would be our recommendation.

While the cost will be somewhat area dependent, any work under a slab is going to be expensive.  We had a flip on a slab that we wanted to move the washer location and was quoted $7,500 for that alone.  Recently, a friend of ours had to have cast iron pipe replaced here in PA outside of the house and received quotes ranging from $2,550 to $12,000.  As far as your quote, I would get at least 1 or 2 more quotes and see what you find locally as it may be your area or the company you called with the high estimate.  Either way, digging under a slab is not going to be a cheap repair.

We have run into the same issue on a flip or two and barring the seller bringing more money to cover the difference or starting over, you are stuck with the appraisal that the lender received.  We had one that went the same way and the appraiser said it was a flip which drove his number and when we asked about an appeal, we were told it would have to go back to the original appraiser which told us we would lose again (and have to pay for it).  Are you sure that the appraisal is too low?  Was your ARV too high when you started?  This is why the saying "You make money when you buy not when you sell" holds true.  If your ARV was too high or your reno budget too low, you needed to pay less initially.   But as far as where you are now, yuo are pretty much stuck with the appraisal unless the buyer fell in love and will be willing to bring more to the table . . . or you decline the contract and start over (and hope you get a better appraisal)

We had been doing flips but had the opportunity to buy a MF.  Found others and have a portfolio of MF properties plus doing SFR flips

If you are doing this remote which your message seems to indicate you will be, hopefully you have a GC or PM overseeing the project.  If so, then you should use what they use rather than getting creative and creating more work for your on-the-ground team.  Let them get what they need from where they are used to getting it rather than going to places that they are new to and hope that what you wanted is what actually is delivered.  Remote flips are not the easiest without a known team in place . . . . best of luck but listen to your GC / PM and use their local knowledge.

I know that in many cases the word WHOLESALER strikes fear and annoyance into the hearts of many investors but there are some that can find you deals.  There is one that we are connected to in the Wilkes-Barre region that sends deals that are deals that are scoped accurately on a weekly basis.  I am sure that there are wholesalers in your target area that can help you find properties that are off-market.  If you reach out to some and let them know what you are looking for, let them be your team finding properties . . . . see some bandit signs, call them and let them know what you want.  Reach out to wholesalers that you find on Facebook or Craigslist and see what they bring you.  Hope this helps

Have you checked the calculators here on BP?  There are also a lot of free apps for your smart phone that do what you are looking at doing.  I find that having it on the phone is a plus as I can check deals quickly without pulling out a laptop or tablet.

As interest rates remain high, those that want to invest are looking for higher returns.  CDs are offering in the 5%+ range.  I would offer something in the range of 8% to 12% compounded annually and paid monthly.  Do not under estimate the timeline as you do not want to burn those investing in your project