All Forum Posts by: Kyle B.

I have a financing partner for potential rehabs I plan on doing and wanted to get BP's input on how to structure the profit split of these deals.

Some background information - I will be doing all the work from start to finish, so my partner will essentially be "silent" throughout the entire process. Given this structure, do most people split the profits 50/50 (half the profits for providing the capital and the other half for the work involved in the deal)? I plan on contributing a significant amount of my own money into these deals as well (at least 25% of the total costs), but wanted to see if the 50/50 split is a good base to start from when determining profit splits.

Is this in line with how other people have structured deals?

Thanks,

Kyle

Troy Kelly, since you can only get so much money in loans from family, I would do some networking at an REI club and see if there is anyone with money that wants to partner on deals (they provide the financing, you do all of the leg work, profits get split). I was actually at a meeting in my area a few weeks back and there was someone just like that attending.

Your other option could be a hard money lender. I have not dealt with these lenders yet, but from what I've read on BP, they lend strictly based on the numbers of the deal. If they know it's a deal where you can get them there money back with room to pay interest (and profit left over for you of course), then I would think they'd lend you the money for it. Keep in mind, this type of money is not cheap. Interest rates could be in the high teens plus you may be required to pay upfront points.

Best of luck though. Hopefully you will get some experienced investors to point you in the right direction on this forum as well.

Kyle

Steve Swanson, I have never heard any mention a marketing fee before. I think most people assume that it is built into the assignment fee. It seems like with this thinking, you would charge a higher markerting fee if you spent more on marketing efforts. I'm not sure your end buyer would want to compensate you more because you were less efficient with finding a target property. The fact that you're only giving yourself a spread of $1-2k suggest you didn't get the house at a low enough price.

I'll be interested to hear what experienced wholesalers have to say though.

Kyle

Ugh... I made the mistake of signing up for his webinar and am now email spammed by him on a daily basis.

Brian Stone, congrats on getting started. I've recently begun sending out yellow letters as well. For the first 75 I sent out, I received 9 call backs, so a pretty good return to this point.

I'm handwriting my envelopes but printing the letters out using a "handrwitten" type font. The font looks really good so I'm not sure it is worthwhile to write out all the letters by hand - that would be time consuming, but I know some people on this site use that method.

Let us know how this marketing works out for you.

Kyle

Brooke McDuffie, I wouldn't be so quick to write off rehabbing as an option. In some ways, it requires the same skill set as wholesaling - the ability to find motivated sellers, estimate repair costs, and determine ARV. There are of course additional skills rehabbers need, such as finding trustworthy contractors, knowing how long homes in certain areas take to sell, etc., but much of the skill set overlaps.

The large benefit of starting off in wholesaling is you can learn about the business without risking your capital. If you miscalculate the repair costs or ARV while wholesaling, the worst you can do is lose your EMD and waste a little bit of time for you and the seller, while in rehabbing, there is the possiblity of losing a lot of money.

I would begin by networking as much as possible and connecting with other investors in the area. Going to a REI club will get you connected with rehabbers/landlords who would benefit from a knowledgeable wholesaler (if you choose to go down that route) or potentially someone interested in parterning on a rehab if you can bring enough to the table yourself (ie, finding a great deal, being able to manage the project, etc.).

Anyways, just a few things to think about.

Natasha W, if you're averaging 150 letters per week, 300 addresses should last you at least two months. That's because you will want to send out mailings to the same recipients multiple times. For my yellow letters, I plan on sending at least four letters to the same addresses before even considering a new source of leads.

In terms of criteria, it depends on what type of deals you are looking for. For my yellow letters, I've included absentee owners with equity of at least 40%. This criteria has almost exclusively given me leads of landlords looking to sell their investment property. If you're interested in talking to these types of property owners, I'd be happy to share what my specific criteria is. Keep in mind it's a small sample size at this point, but I'm getting over a 10 percent call back for my first batch of letters.

Kyle

Kyle Hipp, thanks for sticking with me through this forum thread (haha). So I think I'm starting to understand how your deal worked. You agreed to acquire the property for 40k, immediately assume the mortgage (plus additional amount going straight to principal), and had one year to refinance (in order to payoff the the sellers mortgage and get them their equity back). Would there have been a penalty if you didn't payoff the mortgage within the one year time frame?

Bill Gulley, thanks for expanding upon that point. Is it safe to assume a good attorney will know to work with a note servicer for this type of deal?

Sean Brennan, thanks for the book suggestion. Definitely seems like a worthwhile read.

Michael B., thanks for the heads up. I definitely plan on talking to an attorney before moving ahead with any deal. Not sure I'd use this approach if an exisitng mortgage was still in place due to the legal repercussions you mentioned above.

In the event the seller does go through bankruptcy, is it possible to quickly payoff the exisitng loan balance so you can take possession of the deed, or does filing for bankruptcy immediately lock up the sellers assets? In these deals, is it common for the buyer to vet the seller for financial stability, just like seller would vet the buyer?

Kyle Hipp, thanks again for the response. As you might be able to guess, you're dealing with a newbie here. So if I understand your example correctly, you paid 40k, which allowed the owner to retain about 20k in equity. However, I don't understand what you mean by 0% interest paying $400/m more than escrow. Are you saying that your monthly payment to the seller was $400 in excess of his/her payment to the mortgage holder (essentially what the seller is pocketing every month)?

What was your strategy with the property? Are you holding it as a rental now? Also, did you talk to lenders before the rehab so you knew that you could refi once all the work was done?