All Forum Posts by: John Jack R.

Erick I appreciate the vote of confidence. I am very sure about the numbers. Holding costs come out to about $5600 a month. So even if I am on the market for a year (of course it bites) there is still enough left over. My challenge is that I can do four or five projects (more numbers less risk) not make the same upside but quicker returns. Thanks.

Okay, I have been working on this deal with an associate and friend Victor G. (also a member on this site) for the last six weeks, and we finally have it under contract. Bank REO, 4,700 square foot two bedroom house sitting on half an acre with a swimming pool in the middle of the living room!

The plan is to turn it into a 4 bedroom 4 bath, 5,000 square foot home, moving the pool from the inside to the outside, and of course getting rid of the river rock!

1780 Belcastro Las Vegas 89117 under contract for $380,000. The house sits in Section 10, much sought after and the comps are as follows;

a. Minimum market comp is $146 a foot, $730,000, if we sell at minimum.

b. Average market comp is $188 a foot, $940,0000, if we sell at average.

c. Maximum market comp is $229 a foot, $1,145,000 if we sell at the maximum.

The plan is to turn it into a 4 bedroom 4 bath, moving the pool from the inside to the outside, and of course getting rid of the river rock!

I have just had my architect develop a site plan and "as is" layout, as well as "new" drawings and need to get my electrical and engineering and mechanical estimates, but I figure the rehab could be anywhere from $140,000 to $180,000. With holding expenses will be in the entire project for around $580,000 to $600,000. 

The upside is still pretty big even if we sell at minimum per square foot comps. My question is the regarding the amount of brain damage and time it will take and would I be better off working three or four smaller deals. Even if the combined upside is not as great, there is less risk in numbers. 

Any ideas?

I know that to many of you the answer is obvious but is it?

I run into many investors who seem to be stuck on the one deal at a time paradigm.

More importantly, they seem to be stuck with using as much of their own cash and credit as possible.

Now of course, the guys who make money selling seminars, are pushing people to use as much of their own credit as possible. Leverage credit cards, bank loans, HELOC's and the list goes on and on. Now that's totally awesome assuming you have the cash flow to service the debt and that your profits are not eaten up by high interest rates, AND we all know that everything cost more and takes longer than what we originally anticipated. Is it also really wise to put all of your eggs in one basket?

This is why I subscribe to the power of many. After all we all know that there is strength in numbers. Now I know that none of us, when we're putting a deal together, purposefully buy the wrong property, or the wrong Rehab, and look to being stuck in a house on the market for more than we originally anticipated. But it does happen, and when we do sell its at a very skinny margin or no margin at all!

We don't do this on purpose but it does I happen.

This is why I am a big proponent of putting together as many deals as possible with other team players if need be.

Now I'm not going to bore everyone with intricate detail numbers on the purchase of the rehab but I will speak of my own experience with one of my projects here in Las Vegas.

I will address the numbers in broad brushstrokes hopefully everyone will get the point.

OK so let's use a real-life scenario

1. I bought a bank REO for $194,000
2. The house needed about $35,000 worth of work
3. The projected ARV was 290,000
4. The cash required to make this deal happen is 20% down for the purchase which would be $41,600 and $46,000 for rehab, insurance, utilities and VIG, which would puts the total at $87,600.
5. The total project value is $255,000
6. As a percentage of the total project value $87,600 represents 34% of the entire project.
7. So my question to you is would you for $87,600 giveaway 34% of the net upside?
8. You personally have Zero money in the deal.
9. Essentially if you could borrow the down payment and the rehab money from a third-party or JV partner and secure the 80% of the purchase price with a note & first deed of trust how many deals could you really do? And does it make financial sense at the end of the day?
10. Let's run the numbers
11. This is a real life example the property sold for $300,000, $10,000 more than the projected ARV.
12. Now you could use your own cash and make $28,064 or you could bring in a JV Partner with cash, they make $18,000 an 11% return on investment over a period of who knows. On a sale their money takes second priority after 1st DOT, and whatever is left is split between the parties

My question is, is this the best way to go? I am open to any and all suggestions that you might have.

 They have money, they don't have money. What you are telling them is that holding the property after closing has a financial penalty or value attached which the seller agrees to, and is easily enforceable in a judgment or collection action, should you choose to take it that far. It is better to have it than not.

Hey Victor, welcome to BiggerPockets! We actually have more deals at times that we can handle. It's not that we are not interested in them, it sometime is a function of money, or, time, since we have a few deals going on at the same time. I can wholesale them, or do a JV and everything in-between. Connect with me and I can let you know what we have in our portfolio and pipeline.

Terrible situation to be in, and it happens. In our RPA's, in the delivery of possession paragraph, the seller pays $200 a day, for every day past close of escrow, for violating the agreement. The monetary amount we ask for increases if there are tenants. The bottom line, is that the seller is accountable to delivering you the property, now it still may not help with you squatters etc. but at least you now have a financial stick, and hopefully a motivated seller. The other option is to delay closing or, hold back funds at close, until the situation is remedied.

Okay so, we are rehabbing an almost twelve hundred square foot 4 bedroom, two bath house in North Las Vegas.

Picked it up short sale for $79,000, the ARV is around $120,000 to $130,000. If you want to check it out, the address is 1124 Stone River Drive, Las Vegas NV 89030.

These kinds of houses are pretty popular because of the price range, and are great for FHA or first time buyers, or in fact anybody. As usual we are doing the full meal deal. New bathrooms, new kitchen cabinets, granite counter tops, wood laminate flooring throughout. Its is going to look brand new inside and out!

Challenge! Small kitchen (definitely not by NYC standards), but here is the rub;

Dishwasher or More Cabinet space? 

It is your typical "U" shaped layout, kitchen sink and cabinets on the right leg of the "U", stove & microwave at the head of the "U", and refrigerator and more cabinets on the left leg of the "U".

We have a JV partner on the project who is awesome. She says "No Dishwasher" more cabinet space, I say "Get the Dishwasher in there". We are putting in stainless steel appliances. It's really not a dollar & cents issue, because a good dishwasher is affordable.

So I said, "let's put it on BP and let other flippers decide". 

So what is your opinion?

Okay. It is up to the buyer to conduct all due diligence and know what you are buying.

That said the property could be worth more as a commercial building than residential. I have made a few residential purchases in commercially zoned areas and just closed one where the commercial value is greater. If you email me the address I am more than happy to take a look at it.  I may have missed this but did you purchase this house  to serve as a personal residence or?

 I have a tendency to agree with Art, if you add value, then you are earning your money. At the same time, if you can buy it right, you can always sell it right! The bottom line, is that you always have to be able to live with the consequences of your actions, assuming that you have a conscience. The seller we purchased the house from wanted out. The home as was an expensive albatross around her neck, she barley could afford to pay the power bill!!

Yes, I am going to take the offer, because hopefully if we close, what we know with a fair degree of certainty what we make. And Yes the margins on this deal are slim, but they can be on all deals. If it was easy then everybody would be doing it. Oh wait everyone is?

Sorry just a dig at the TV Shows and get rich quick guys.

So about four months ago, my business partner has an inside track with this HUGE DEAL! It was a Spanish client of his, whose husband passed away, after a legal battle with her late spouse's family, she won the right to sell the home that they had lived in for years. She had it one the market for close to a year and no takers, so she reached out to him for help.

One Challenge! She was close to twenty thousand dollars behind in mortgage payments and the house needed a lot of work. When I say a lot, I mean a lot!

3,700 square feet, five bedroom and four bathroom, huge kitchen and living area at the end of a cul de sac on a 10,000 square foot lot and if you know anything about Las Vegas, its a big lot. The house easily has an ARV of around $440,000 and we had an opportunity to buy it for $330,000!

My partner was ecstatic! Meanwhile at the time we are pushing six projects simultaneously, but I am enamored with the project as well. So, we sit on the deal until our load lightens up, and the more I look at the project, I know that in order to get top dollar, the rehab is not going to need to be $30,000 but more like $50,000 and there is NO POOL! So now I am less enamored. The other challenge is that among our all of our projects when I run the numbers for the same money, we run three to four small deals and have about twice the upside and not all of our eggs are in one basket.

So September hits and we have to make a move, I am not to keen on the project, but my partner straight up tells me he wants to do the deal.

In the past my partner and I had always talked about the fact that we believed that the reason a lot of properties don't sell or spend more time on market than they should, is because of bad real estate agents. And when I say bad, I mean agents who definitely should not be listing houses! From my own experience in Las Vegas I cannot tell you how many non responsive, slow agents there are but we have had experiences with many. The good news is, that there are a lot of great agents out there too, and we have some really great ones working with us too.

So anyway what to do now? We have a lot going on and this is a major risk and my partner is dead set to do the deal!

Then the idea struck me. Why don't we buy the property (too late to wholesale), re-market with our aggressive real estate agents and see what happens? We would market for three weeks to a month, if nothing happened, then okay, commit to the rehab. So we closed on the purchase in September, and started marketing, I even posted it on Bigger Pockets Marketplace. Of course the clock is ticking. We did pay to haul the trash out and and all the garbage in and around the house to make it more presentable. Then just this last week, lightening struck, and we got an offer and its going into escrow, not closed yet so cross your fingers!

The bottom line! We bought it for $332,000 and now selling for $375,000. But I really believe that there are properties and projects out there that can be "flipped" with little or no work. Now I know for me it goes a little against the grain, because I want to at least add some value to the proposition. Makes me feel I earned my money. What do you think? And perhaps this also addresses the mop and glow rehab versus really producing something of value with major improvements.

This is a bigger conundrum, as a flipper or rehabber which direction do you go? Each path carries it's own inherent risks, do too little and you will never sell at the price you are looking for, or, do too much, and have people go wow, but price yourself out of the market?

What is your approach?