All Forum Posts by: Bill Hinshaw

@Patrick Boutin I agree with others who have said 60/40 or 65/35. I also caution that your arrangement will likely create much conflict and frustration. Partnerships are hard. Partnerships where the roles are not clearly defined (which is what you have here) are going to be even harder. Ideally you would have one GC, not 2 part timers whose availability is going to vary day to day.

That said, you can still get the learning, experience, and maybe even the profitability that you are looking for with your first flip. Just be aware that there will be multiple challenges along the way and significant stress on the relationship with your partner, and you probably won't structure your 2nd one the same way.

Partnering is an excellent way to start out. However, if I was in your shoes, my first preference would be to partner with someone who had already flipped a few houses, the more experience, the better. 

I have experience with this situation. We are structured as an LLC, with a checking account and credit cards tied to the LLC. Trust is key. Your partner will need freedom to write checks or use a credit card for paying subs, buying materials, etc. You'll need to watch it closely without injecting delays in the process.

Another thing you might consider is to do each house from a unique checking account. Same bank, same llc, just a different checking account. This will help you track expenses for each house a little easier and will prevent co-mingling of funds. 

The cash I put in is treated as a low interest loan to the business. My partner has no equity in the business but gets a split of the profit from each house. This needs to be spelled out clearly in your operating agreement.

Are you guys doing a 50/50 split? Are you doing all cash transactions? I strongly recommend you think through your split vs what each of you is putting into the business. If you are putting 400k into a house, and your partner is putting 4 months time into the same house for the same profit... that is an inequitable situation that might be difficult to maintain long term. Now, if you're only putting 40k into the house and your partner is putting in 4 months... now you're getting closer to a 50/50 split of resources, and thus a 50/50 split of profit.

These are just my inputs as someone in a similar situation. I am not an attorney or accountant.

They are going to potentially pay you a wholesaling fee AND give you 50% of the profits with zero capital required and zero involvement in the rehab, and you get to make commissions on the sell side? You feel like they are legit. 

You're wondering if you should do this or do your own rehabs. Do both! You have absolutely zero risk by partnering with them. Leverage what you learn from their rehab processes - budgets, contractors, etc.

I'm with @Denice S. - I feel like I'm missing something. Maybe @Sebastian Taylor is right and they will come to you for money once the process has been initiated and a "problem" has arisen. In that case you need to seek feedback from other people who have already partnered with them. Keep checking for the red flags. Until you find some, I would definitely consider this as a great way to build your business.

@Steven C. Suarez

Here are 3 recent flips in the area. These are all rock throwing distance from your friend's houses.

Grand Oaks - 25 DOM, $251/sq ft

Barrywood - 10 DOM, $254/sq ft

Meadow Oaks - 2 DOM, $241/sq ft

All of these went contingent in the summer, the latest one being in September. Either the market changed, or the quality of work and finish isn't what it needs to be. His/Her realtor should be able to give guidance on both of those potential issues. What kind of feedback are they getting from the showings?

I agree with @Michael Medinger's idea and have recommended that to my partner's on our current flip.

@Steven C. Suarez, @Account Closed

So, Steven, I have a bit of a different take on these houses. Your friend has completed 2 flips and stands to make a decent profit from both. At least from the pics, each one looks to have been completed with decent quality. From what I can tell on Redfin, there is support for the prices your friend is asking, they've only been on the market 30 - 40 days or so, and November is not a fun time to be on the market (I have a house in White Rock Lake area that has been on the market since Nov 4). Feedback we have gotten from realtors in the area is that things really slowed down after Oct, and the seasonal slow down seems to be a bit more this year compared to others.

Again - decent houses, price is competitive, highly desirable area, potential for profit, but market has slowed a bit. I don't know the full story. Obviously there has been some conflict. It just seems to me that your friend isn't in that bad of a position. Please correct me if I'm wrong.

All that said, I agree with Michael that your friend needs some help on the finish. Especially in that price range, you can't miss on the finish. As Michael noted, some of the stuff is a bit too aggressive for a flip. More neutrals (especially whites and greys right now). Here is our last flip that we sold for $555k - this is consistent with the finish out we are seeing:

426 Brook Glen  

Great idea @Tim Haag. I would also consider developing multiple sources of income as you build your flipping business. Become an agent, appraiser, painter, photographer, wholesaler, inspector, stager... all things that might help keep the ship afloat while at the same time keeping you close to real estate and helping you network as you look for flips.

I would also consider looking for joint ventures with experienced flippers. You would need access to funding. You also have the ability to be on site as a project manager, staying on top of contractors, coordinating inspections with the city, etc that you could offer to a potential partner. Even though you may not have experience as a GC, managing people, projects, and budgets is a huge part of a flip, and you don't necessarily need construction knowledge to do that well (it helps, of course). Form your LLC, get some business cards, and go drive the hot areas of Durham... flippers aren't that hard to find in the right areas.

I would definitely consider the example you provided. 21% ROI works for me. The 21k net is a little slim, and doesn't leave much room for error as others have mentioned. Still, 120k ARV indicates a house that is probably around 1800 sq ft with a lower end finish, and a 28k rehab budget is small. Those 2 things indicate a relatively quick flip and the possibility of being in and out in 6-8 wks or so.

21% in 6 wks (plus closing time) = green light for me.

If experienced flippers are passing on these types of deals, it is probably telling you that your numbers are wrong. 

Not an expert. Those cracks are typical of a shifting foundation here in North Texas. It isn't a great problem to have, but pretty typical for distressed houses in my area. Is the house built on a slab or pier and beam? Pier and beam is cheaper to fix. Are there any obvious drainage issues with the house?

Are there cracks in the exterior, along the mortar lines? The drywall cracks you are showing aren't terribly surprising for a house in Texas and may not be indicating an expensive repair job is necessary. Exterior cracks are usually a better indicator that foundation repairs are needed.

I would recommend an independent engineering inspection if you plan to proceed with the house. They will give you a detailed plan to show you where the house isn't level and where piers need to be added if necessary. With that info you can begin getting quotes from foundation companies. There can be significant variation in pricing from foundation companies. You might check around with local investors to see who they are using.

I think about this way differently than the responses so far. I've never done a deal like this, so it is extremely possible I am way off.

A 12% annual return is something you would give a lender in first position, not an investor. If I'm understanding correctly, the investor is the only one in this deal who is going to have any skin in the game. If this were me, and I needed this investor to make the deal happen, I would be much more generous in my approach. The investor needs an equity stake in the overall return on this project. I do not think a 50% share of the profits is an unreasonable expectation. You are making an infinite return on your money in this deal.

Putting myself in your investors shoes, I would not consider a 12% annual return backed by nothing (or a 2nd lien position at best) as a reasonable proposition. I would most likely reject your offer. 

Like I said - I may be way off.  

Congrats Charles! I hope you do well with this house. Keep us posted.