All Forum Posts by: Kyle Smith

I have had a real estate investment model in my head for a while and would like to hear other peoples opinion on it, since there may be something I am missing or not seeing. I thought the model up as a way to both help the homeowner and make money, in addition to minimizing the amount of capital one has to invest. Basically, it is a way for a homeowner who has significant equity, but bad finances, to partner up with an investor and flip their own home. 

For example, say a homeowner owes $100K on their home. However, the home needs about $20K in repairs/updates in order for it to sell at the market value of $200K. Assuming the homeowner has bad finances/credit and cannot just go pull equity out of their home to fix it up, then I come in and finance the repairs with the condition that I get x% of the profit after the home sells, where x% may be 30-50%. 

Of course, I would need to somehow secure my equity/investment through a lien or deed (or some other method?). However, in this example I could potentially make $34K-$20K off of a $20K investment, and the homeowner would walk away with $47K-$34K, (these numbers include a realtor fee of 6%). Whereas in order for the homeowner to make the same amount off the sale, they would have had to sell their home as is, needing significant repairs, for $156K-$142K, which would probably be difficult. And in addition, by me doing it this way I only had to put up $20K, instead of actually buying the home and trying to flip it. Hence, if I where to do this with 5 homes I would only need $100K in capital, instead of lets say $500K in capital if I where to buy and flip 5 homes for a comparable profit. 

Now, of course the limiting factor in this model is finding homeowners in a distressed financial condition with significant equity in their homes. However, if they have owned their home for 15-20 years, they probably have significant equity.

I just wanted to share this idea and see what other people thought. It may be genius, or it may be stupid, but any criticism or comments are welcome.

Thanks for your input,

Kyle Smith