All Forum Posts by: Corey Davis

Times change. Markets change. The method does not change. Where one might have found a 20% return before, may be different now, but it's still there.

When everyone wants coffee, tea sales go down. When tea sales go down, tea prices fluctuate depending on the type of tea people still buy or don't buy.

Supply and demand of homes just changes the type of buyer we are dealing with, and the type of product they want.

@Benjamin Ficker I would agree. In fact, I'd go one step further in saying that neither parties have committed a wrong. Despite our profession revolving around the exchange of properties, we have a duty, much like those in the medical and legal industries, to realize the human factor in our product and services. We are dealing with people's lives. The sense of home and belonging is generally positioned within the walls and property lines of the currency we exchange.

Without the ability for people to be unable to continue possession, we would have nothing to possess. Without the ability for people to be able to find, purchase, and live in our product, we would have no product. It parallels the natural order of things to begin and end, and blaming a road for coming to an end is to blame the road for existing.

@Account Closed So, what is the situation? Why can they not pay for the home, and how can you help them, yourself, and the bank come to a mutual benefit? I generally find that asking that question to all parties involved answers itself better than outside advice.

Now, if you're two steps ahead of me on this, post an in depth scenario, and let's try to figure out the solution.

Your goal is to acquire the property with 100k profit potential, (congratulations, that's a nice spread)

The owner's goal is ____________________________________________?

The bank's goal is _____________________________________________?

To answer your initial question in a simplified manner, yes. You CAN help facilitate the process, but you have to be on good terms with the other two parties, understand and compromise on the goals of the other parties, and ask what you can do, then follow through 100%.

Banks are notoriously slow and ineffective when it comes to making this process comfortable for the other two parties. I find that if I figure out who personally has a vested interest in getting the bank's job done, and maintain communication, you pick up your shortcuts along the way.

Have you consulted a RE attorney on the matter? You'd be surprised at how easily a legal nomenclature can grease the wheels of communication.

Find a realtor, ask them where the lower end neighborhoods are reviving, look in those 'hoods for distressed homes. Familiarize yourself with trulia, Redfin, and zillow. Keep in mind the strengths and weaknesses of each of these services so you don't misinform yourself. Look for recent sales info in the areas you are finding your distressed properties so you have an idea on what you're looking for. Find the distressed properties with good ARV, and analyze for profitability.

And shake as many hands as possible. It's all who you know.

@Account Closed serious question: have you actually talked to the owner of the property yet? It seems you're speculating some things, which is always a deadly mistake in the short sale world.

@Jay Hinrichs @Justin S. @Kyle B. I really think you guys nailed it. Some flippers are still doing 4-6 flips a year and seeing great spreads. A lot of flippers get impatient and buy anything they can afford, and end up with smaller spreads. Flippers getting good spreads are getting them because they are holding out, and buying right.

Jay, I'm pretty familiar with Portland, and the only deals I've been seeing are the 300-400k flips that are bringing in 100k profits. What area of Portland are the lower end flips you're talking about? Are they buying listed homes off the RMLS?

@Martin Peter There is actually a market for the antiques you will often come across when updating a home. This is where networking comes in handy. I have a guy that deals in vintage appliances and furnishings that most people consider outdated trash. He has a market for it, and buyers. When I come across a home I know has antique potential, I call him and he sells it all for me.

Connections are everything in real estate.

@Kirk Zacharda when you say "choosing a market to flip houses in", define "market".

Are you referring to the type of city? Neighborhood? Economics of an area? If you are referring to a physical geography, I generally look at where the growth of new development is happening and try to stay one step ahead of the game. Actually more like half a step. You kind of want to find an area that has momentum, then figure out how much you can afford, and how much of an impact you will make in that area, and how that impact will affect the profitability of your work.

Here's an example: if a Whole Foods or a Starbucks moves into an area that looks like it may attract a wave of first time home buyers, I will generally look for an REO or fixer that I can afford to purchase and rehab, look at all the houses on the street to see what I need to compete with quality wise, look at the demographics, and estimate what kind of improvements will speak to that targeted buyer, and look for what kind of trend or brand will make my work stand out.

Why Whole Foods or Starbucks? Because that generally fits the demographic trend I've had the most luck with, and the demographic that seems to be attracted to my design sense. I stick with what I know will work based on what I've learned from previous successes.

If you haven't worked in an area before, and therefore have no previous experience to base your estimates on, go home shopping. Look at what is hot on the market, ask your agent where and what is selling, and why.

I have a few realtors that literally tell me where and what they WANT to sell, and that's where and what I flip.

Isn't this really a discussion about "cash" VS "wealth"? Flipping typically creates "cash", whereas buy and hold strategies create "wealth". Both might be considered income, but as we all know, income is not wealth. Plenty of very unhealthy people have incomes.

Wealth is a strategic placement of funds, calculated decisions, and educated spending, saving, and investing that all equal a system in which one considers themselves "set up" to enjoy life without the constant hassle of making ends meet.

Theoretically one could flip houses for years, earning well into the upper echelon of tax brackets and still not be wealthy, or be completely wealthy, depending on how they see the daily activities of their lives as either a job, or a hobby that pays well.

But to get right down to what I think you're asking Christy, is "what is the best approach to wealth?" And that can't be answered without a lot more info on your circumstances.

If you CAN afford to buy and hold comfortably, do it. That's building wealth. If you CAN'T afford to do that yet, flip houses until you can. That is also building wealth.

I'm considering a JV partner on some upcoming projects, and have not partnered with anyone outside of my circle of contacts before, so some advice on how to go about this would be great!

Normally I fund a flip one of two ways:

Purchase the property using a HML, and rehab using my own funds,

OR,

Purchase the property and borrow the rehab funds all in one loan from my HM lender.

Obviously using my own funds on the rehab is ideal, saving me 20% on the rehab, but I find myself lately with more than one project going and can afford to use loaned money, reserving my own cash for the inevitable emergency, or in the case these days, for another opportunity.

When I fund the project 100% on a HM loan, I'm usually under 65% ARV for the total loan, and at 15-20% financing. My average deals now are 200-300k purchase and rehab total. So far the average rehab amount is 30-70k.

I have an ad going in the marketplace, and have made some great contacts, (thanks bigger pockets!) and now I would like to know how experienced professionals structure a deal like mine.

I will use my actual numbers on my current project for an example.

Property was purchased at 240. Estimated rehab is 60. ARV is 450. I have six months under contract with my lender to complete the flip. (More than I need, but if I hold the property until September/October, my agent is estimating an increase in interest and a potential for bids in the 475-500 range.). I know that's an interesting topic in itself, I will start another forum post for that shortly.

My situation is this: if I foot the bill on the 60k rehab, I tie up funds I could really use to start another project I have coming up. But, if I include it in my HM loan, it adds another 12k onto my losses, and I have to deal with the invoice clearance and inspection procedure to get my rehab funds.

If I partner with someone who puts in the rehab funds up front, I can actually save myself some money by utilizing a crew that I normally couldn't afford using the HML system, increasing my chance of making this flip work the way I want, and allowing me to utilize my own funds as a safety net and/or start another flip.

Kind of a great deal, huh?

Sooo....

How do I structure it so my rehab partner and I get a fair deal? What kind of contracts have people used? What's the best legal structure to use? I currently operate under an LLC, would I include this partner as a member of my LLC? Or do we start a new one? I already purchased the properties, should my JVP put a lien on my properties for his protection? Is there a legal issue of some kind with paying a percentage of my profit as his ROI? Or paying him a percentage on his investment?

All advice, as always, is very much welcome and appreciated!