All Forum Posts by: Fred T.

Ok, I'm going to have to "Let You Have It" on this one.

1) This is NOT a deal IMHO, let alone a deal with a "Margin of Safety"

2) While I like the design of the Flyer, it still doesn't cover what a Private Money Lender would be looking for to feel comfortable with the transaction:

a) Skin in the game?

b) 2 clear Exit Strategies

3) How will the Investor Be paid during the renovations and vacancy period - Are these "Reserve" funds available now and verifiable? 

4) How much is the total Acquisition and do you have enough funds to cover the Closing Costs?

5) You want a $56,000 loan, yet your total cost will exceed $66,000, do have those funds available now?

So aside from the Questions that your Flyer does not answer, let's look at the deal itself if we may:

1) Your advertised ARV: $80,000 (High End for Sure)

2) Purchase Price: $53,000

3) Your Rehab Estimate: $13,000 (Does that also cover the "Differentiating" costs of "Nicer Appliances, Security Lights and a Washer/Dryer"?)

-break-

So now, you are so far at $66,000 in "Disclosed Costs" relative to an ARV of $80,000 which is 83%...not such a good deal and we didn't account yet for the closing costs, refinancing costs and holding costs...not looking good so far :(

-break-

4) Interest Only Payments for 6 months with no rental income (this assumption is based on the fact that you mention starting your refinance at month 9 which is after you had a tenant in place for 3 months per your bank's direction...so I would read that as 6mths vacant): $2,100 in payments

-break 2-

Now, with the Interest Only Payments, your total cost is $68,100 which takes you to 85% ARV and most likely closer to the 90% mark with closing costs and the inevitable construction overage and delays...but I digress

-break 2-

Let's now talk about the Bank Refinancing for a minute. 

Most banks will only do a R/T Refinance based on the original Acquisition Price if the Title Seasoning is less than 1-2yrs. 

IF that's the case in this scenario, then one could expect a Refinance Loan of between $39,750 to $42,400 which means you will have to pay, out of pocket, at closing between $13,600 to 16,250 to close the existing mortgage lien. 

Let's say your bank is different and they will do a R/T based on the ARV ($80,000) which will be a new loan amount of $56,000 (A R/T loan will not exceed the current Liens on the property up to their percentage of value limits).

Ok..ok..let's say your Bank is aggressive and will allow you to do a Cash Out Refinance based on a Revised Appraisal showing the $80,000 valuation...then the loan amount would be between $60,000 to $64,000 which will payoff the lien and put MINUS $2,000 to MINUS $8,100 in your pocket.

Not seeing the "Deal" yet....

Comps used, most likely, do not fall within the Appraisal Guidelines

When I ran comps, I show an ARV of between $67,100 to $79,000 but I'm not going to redo your numbers..just know the $80k is on the high side and would most likely need higher end materials to achieve that number which may through off your rehab budget. With that said, if you go all out, you might actually hit the $86,000 mark (like the comps you provided) but I didn't see a kitchen upgrade, floor upgrade or bathroom upgrade on your rehab list.

Rents are most likely going to fall between $800-950 so again you are at the high end in your proposal

Insurance for a Florida House seems low.

-In Closing-

In a nut shell, if this was presented to me as a Private Lender, I would do one of two things...one throw it in the trash or I would lend no more than $43,000 on it and you would have to have and verify the rest of the funds required to make it happen before I give you anything.

Not sure if this helped you, but since you have time to get out of this deal...may want to reconsider...but I'm only one opinion of course!

Good Luck!/

@Marc Vargas Not sure if "Bird Dog" is Legal in TX...may want to consult with a Real Estate Attorney. Also, any type of a Joint Venture (JV) agreement should be in writing before hand. Again, consult with a Real Estate Attorney to formulate a Texas legitimate JV Agreement...not a Boiler Plate or Template.

@Account Closed I hear you LOUD and CLEAR!...lol

First off, since you did not mention, I am assuming this is a normal Residential Mortgage and NOT a Commercial Mortgage or Hard Money. If this IS NOT a Residential Mortgage, then disregard this post as some of the items mentioned below may not be applicable or required.

The Mortgage Broker is required to issue you a Good Faith Estimate (GFE) and Truth in Lending (TIL) form along with a slew of State and Federal Mandated Disclosures for you to review and sign off on prior to ordering an appraisal or opening up an Underwriting File (U/W). 

Your GFE will disclose ALL related fees and costs with regard to the Loan. This includes, Lender Fees, 3rd Party Fees (Appraisal, Survey, WDO Report, etc.), Broker Fees, YSP "Yield Spread Premium", Title Costs, Government (State/Local) Costs and so forth. This GFE must come within +/- 10% of the Final HUD-1 at the closing of your file. You will receive the HUD-1 roughly 3 days prior to closing the file for your final review.

He is also required, if you ask him, to provide you a copy of the Credit Report Scores being used to "shop" your loan out with.

Once he has your Credit File and all signed Disclosures, he can then "Shop" your loan and start securing "Conditional Loan Approvals" from Lenders. The CLAs will list what conditions need to be met by you and/or the property, what the terms are, what the program itself is, what the interest rates are, what the associated fees are on the Lender side and so forth.

The Broker then uses this CLA to "Update" your GFE & TIL as needed and provides you copies of the revised documents for your review and approval.

Only once the above process is completed, and you agree with everything thus far, is the Appraisal Ordered, Title Report Ordered and U/W File is opened with the Lender.

As far as Appraisal Fees, they are usually paid to the Appraiser themselves either in person or via an online payment method straight to the Appraiser...not the Mortgage Broker.

Good Luck!/

My suggestion is you should first get educated on the actual Wholesale Process and make sure your Contracts meet the intended purpose. You should also know exactly what you are assigning as a Wholesaler as very few people actually understand this key part which, if done wrong, can lead to fines and unwanted calls from State Agencies regarding your activity.

After you have your ducks in a row as far as legal, knowledge and requirements, then ways to start finding potential wholesale deals are:

1) Driving for Dollars

2) Online advertising "We Buy Homes"

3) Meet with some local Estate Attorneys and Bankruptcy Attorneys and introduce yourself as a Real Estate Investor

4) Road Side Signs: "We Buy Homes"

5) Attend Local Networking Venues (like REIA Clubs, Meetups, Seminars, Etc.) to get your name out there and meet others in the business - Have Business Cards to hand out

Now the hard part...learning what Investors are looking for. This is where a strong Education comes in for sure. As a Wholesaler, you will be expected to know everything and prepare everything for the Investor if you want a long term business and relationship. Here is what Investors are looking to see in your potential deals:

1) The Comps used to verify an ARV/FMV - These have to fall within guidelines to actually be recognized as "Good Comps"...this is NOT a Zestimate or any other Automated Valuation guess **NOTE: CAP Rates on SFRs mean nothing IF the property can not actually Comp Out...so if the Exit is a Hold strategy, put the Projected CAP into the package for sure but only if you know what exactly is used and not used in determining a CAP to begin with or you may look silly out of the gate. If the Exit is a Flip, then be sure to include the Projected ROI.

2) You will have to know about Construction so that you can estimate the repairs the property will need to get to ARV/FMV - key here is knowledge of rehab, construction laws, material cost, labor cost, contingencies, time frames, etc.

3) You will have to estimate Holding Costs based on the estimated time-frame of the combined Construction Period as well as Average Exit Marketing Time for the area surrounding the subject...again..homework and knowledge. If the Exit is a Hold Strategy, then you should know about Seasoning Requirements, difference between a R/T and C/O Refi, DSCR ratios, OER, Mortgage U/W, Market Rents, Absorption Rates/Marketing Time Averages, IRR and Cashflow to name some of the major items related to a Hold Strategy.

4) You will have to estimate Acquisition AND Exit Costs (including your assignment fee)

5) You will have to take pictures of each room, specific pictures of all damage the property has, all of the Mechanicals (Panel, HVAC, HWH, etc.), each side of the exterior, front and back of roof from ground or interior windows and 2 street views facing both directions from in front of the property. Remember, Investors know the property is not in good shape..so don't try to hide damage as you will waste their time if your pictures and story don't match the actual property details...honesty goes a long way here.

6) Once you have done all of your homework expressed above, then the key is for you to "Control" that property at the right price so that you can actually wholesale it or do the project yourself. This is where Wholesalers fail...they try to misrepresent the property to Investors (or they simply don't know what they are doing in the first place) and when the Investor attempts to negotiate the price with them since their numbers were wrong, the Wholesaler has no room to move and ultimately losing the property over time and makes $0.

You can be building your Buyer's List as you are doing all of the steps above -OR- you can wait until you have an actual Good Deal, then post it for the universe to see and you will start having Buyers contact you which builds your Buyer's list as well IF and only IF you packaged and presented your deal properly to begin with.

Wholesaling requires the most Knowledge, Most amount of Effort, is Very Time Consuming (if done right) and contains the most liability if done wrong. Most people get into Wholesaling because they believe it doesn't cost any money to do...which is true for the most part and therefor the actual monetary risk is limited. 

In closing, if you are a GOOD WHOLESALER you make a great living and have long term business relationships. If you are too greedy, un-educated, lazy, liar, lazy again, greedy again and lazy one more time, then your business will fail, you will have a stained reputation and you will spend all your time for $0.

With all that said, Good Luck!/

Rehab and Flip Your OWN Deals...answer is NO

Represent someone else's Fix/Flip or secure a tenant for someone else's Hold (rental), YES

Wholesale: This can be a tricky area if you don't know what you are doing. In order to be a true wholesaler, you have to first acquire an "Equitable Interest" in the asset. This is were a ton of individuals usually mess up and if the transaction is done incorrectly, you could be viewed as practicing Real Estate without a License which is a crime and carries not only fines but potential jail time.

If you don't know what is meant by (and what the courts recognize as) Equitable Interest, then get educated first and then have an Attorney prepare your contracts with the necessary verbiage required in your jurisdiction. If you bypass the education part and just get your contracts, you may not know how to use them properly which again could present a problem for you./

@Scott Le Resources and Experience yes but I'm pretty sure I can't give you resource information on this platform./ 

All the options I mentioned were methods to accomplish your goal without your own capital involved (or credit reviews)./

Forgot to mention in previous post, you might want to valuate based on GRM and/or 3x Disposable Income if the more conventional ways aren't available./

Here are some options:

1) Locate a deal that does work for the Buy/Hold Strategy and sell it off (via Wholesaling) to those that have the ability to buy such properties if you can't. Over time, you can create your own piggy bank and not have to rely on a bank to give you money for your preferred strategy. This method is for the patient individual of course..lol

2) Control the property through a Master Lease Agreement and have your own Buy/Hold Property

3) Form an alliance or JV Agreement with someone who has better credit than you and do the Hold or Flip strategy together

4) Control the Property through an Option Agreement and "create" the market Values

5) Use Seller Financing or Subject To to acquire the property and either create the Market to Flip OR Hold the property

6) Control the property through an Option Agreement, Rehab it and Flip within the Option Period using Transactional Funding

The above are only a few examples of what you can do when the ARV is tough to come by and/or the Money says NO. The key is to think outside the box when the environment is trying to tape that box close.

Knowledge is the key to success...so as long you are familiar with the over 20+ ways and combinations thereof of controlling properties for a profit, you will never have to ask the ARV question and you will not be limited to your strategies.

Remember, Markets change frequently and your knowledge should afford you the opportunity to recognize the change and act upon it accordingly with a shift of Strategy. If your tool belt only contains limited strategies, then invest in more tools (knowledge).

Happy Investing in Tampa, FL!

Here's a thought for you, research the area you are looking to invest in based on your risk assessment and then study the numbers in that region.

All of these "rules of thumbs" are not always reliable and sometimes can get you into trouble...in a hurry.

Start with Knowledge of the USA Real Estate Landscape, Laws, Regulations, Processes, etc.

Do your Market Research based on your own Feasibility Study to determine what your Region sweet-spots should contain and not contain

Build a Local Team to advise you as to specific matrices (Vac Rates, Mgmt Rates, CAP Rates, Mtx/CapEx Reserves, General Expenses per SqFt, OER baseline, etc.) to use. The problem with using "Rules of Thumbs" are that there are no two markets identical. With that said, those could be used to do a 30,000ft view of the region of interest, but before you start investing, get out of the clouds and closer to the runway so you don't crash.

Plug the numbers in based on your homework

Formulate a Business Plan for that region

Execute your Plan

On to the next Market and do it all over again.

Welcome to USA Real Estate!/