All Forum Posts by: Steven Goldman

I hope I was not misunderstood. Forming a team of people and being the down money contributor to that team could be a viable entry into the game. But you must have enough experience to understand the risks, to assemble a winning team and minimize the risk of being a quasi equity investor. Some people take a jr. position in the LLC with a buyout. Some team members who lend down payments only get a unrecorded note in exchange for their participation. So, it is a trust game and you need keen people skills to avoid getting into a situation where your capital is at risk.

If you have construction experience or a  good credit score, you can be the experience or credit partner for a fix and flip loan. So their are many ways to enter. They all require strong people skills, vigilance and verification.  I think it is better to actually do a few rehabs and hold or flips, before you start being a jr. investor or, experienced credit partner. It allows you to fully understand the process and thereby spot a situation were others may have enthusiasm for a deal when they should not. 

Their is enough inventory around the country so that a new investor can buy a inexpensive property, and do the rehab for 35-40k all in. You are not going to get rich but you will get the necessary education.

Wow, I am late to this party put I see it has stirred al very complex discussion. Lets start by keeping this simple. If you are new to real estate you have no business lending money to someone who is supposed to be more capable than you are. If I was going to involve myself in loaning my own funds on real estate deals I would start by taking some legal courses on lending in the State you want to lend in. I would also suggest working in a mortgage business for some period of time to understand the risks and problems which arise in the lending business. Now if your current life's experiences have made you literate and competent in those areas then go get it. 

For instances 2nd lien positions in Pennsylvania are garbage unless you want to payoff the first lien holder? How much do you understand about the Mechanics lien laws in the state you want to lend in? Or tax and utilities lien rules?

If you have a relationship with a good attorney who can guide you through the process and sufficient excess operating capital, including reserves, maybe you could start in the business by financing someone else's deals. Not highly recommended. 

Hi Josh:  If you are planning a long term hold strategy than I would immediately find a mortgage professional who can be a member of your team and provide you with sensible financing strategies to grow your business. Your best path for this property may ne a D.S.C.R. bank whose terms are running around 5.99 for a 10 year adjustable arm with 20 year am. Or, a funding company with a 30 year fixed product which rates are in excess of 7 today. Rates are volatile in a upward direction and therefore waiting around will only harm this project. Good luck a good team is worth its weight in gold!

HI Tal we lend in the Poconos. I am a former practicing attorney. I can give you a name if you D.M. me. Good luck.

Hi John, so the project is a success because you learned two very important lesson. Always plan your exit strategy before you acquire the property. Second, your rehab will always cost you at least 5 percent more than you have budgeted. On to a more important subject. How are you going to exit on this property? Well if you have  6 months reserve including 401ks or IRAs etc., than you should be able to refinance this property to 75 or 80 percent of the appraised value with a D.S.C.R. loan. You also need reasonable credit. (700 plus.) and a one year lease in place with security deposit with proof of first months payment.  

Your other alternative is to flip it and move onto the next deal with the profits.  

Have you read Rich Dad poor Dad by Kiyosaki. He advises never to quit your income producing jobs. Rather use them to make money to invest and carry real estate. (If that is going to be your business.) Your job is not your business. When you have sufficient mailbox checks to continue your business and pay your bills than you can think about quitting your job. In the meantime live frugally until you have established enough cash flow to prosper without working a job. Good luck.

Hi Chase, at the  moment only some small regional banks will consider a 80 percent cash out refinance. None will do it with out seasoning. The market is highly unstable and the prudent lenders are restricting LTVs in order to protect themselves from a sudden deflation in prices do to a recession. That is not to say do not do a deal, but, be forewarned that the market is quickly getting more conservative. Processing and underwriting times are elongating as lenders reduce force in anticipation of the quickly decelerating market.  Do not overpay today or you will pay for it tomorrow. Good luck. @g2loans.com

Quote from @Sergey A. Petrov:

Get a HELOC instead of a straight refi / 2nd mortgage. It'll be there when you need and you pay interest only on what you draw from it. No draws = no interest

I agree with Sergey that a HEOC would likely be the best mechanism to create the fund without paying interest on it until you deploy the capital. It would not be wise to try to arrange a HELOC while you are also trying to consummate the purchase contract. Good luck.

Quote from @David Moon:

@Nathan Murith

Thank you gents for your responses! Sounds like lenders will do their own apprisals and I could end up having multiple apprisals done if I shop around with different lenders.

Appreciate the helpfor a lnder

David, you need to do lender due diligence first. The lender you select will order the appraisal. You will pay for it. Appraisals are not inexpensive and you will not benefit from multiple appraisals. The appraisal establishes the maximum loan amount from which the LTV is derived. If you are trying to determine the value of the property you need to find a reliable real estate agent and have them give you an option of value as well as, learn to research values yourself. You need to know that for both the purchase and the after repair value if you are BRRRRing.

Quote from @Patrick Kaiser:

At the end of almost every podcast for many years, they used to ask, "What separates those that succeed from those that fail?" or something along those lines. 

Over the years I've worked with somewhere in the range of around 20 flippers. For context I am a retail real estate agent. Generally speaking the flippers buy properties from wholesalers and I am not involved until sometime after they purchase the property. I only have a limited perspective, but from my point of view, these are the top 3 reasons flippers fail. 

#1) They are too greedy

In flipping you can sometimes make a lot of money. But on average, you might make $20-$30k on an average deal. I know sometimes you make more and inevitably somebody will comment they make $100,000 on every house, but in my experience $25,000 is a good expectation for an average budget flip.

However, most people, usually on their first flip, find this number to be not enough. They don't care about comps, they don't care about market, they just want to make more. So, they insist on listing their houses really high. For a short period there, we could still sell them sometimes but more commonly they would sit on the market for a month or two with the sellers somehow bewildered that the house which was listed 10% above all comps was sitting there while the houses around them were selling. 

After spending an extra $10,000 in holding costs and getting below list price offers, they end up breaking even or losing money on deals they could have made $20-$30k on. Instead of learning their lesson, if they try again, they usually make the same mistake to try and recoop their losses on the next deal. 

#2) They are too hands off

For some reason the flipping scene tends to attract people who just want to pay someone else to flip houses and just collect profit. If you've been in the business for a while and you have a flipping machine going on, fine, no problem. But if you just expect contractors to show up and do their jobs and everyone is just going to treat you fairly and do what they say they are going to do with no supervision you're living in a dream world. Many houses I show up and start taking photos of work done by contractors and send it to the owners including: bad drywall repairs, crooked cabinets, chipped counters, holes left in roofs, lights that don't work, loose toilets, baseboards never painted, drips and runs in paint,  cabinets never sanded (rough to touch look ok in photos) tile floors uneven, the list simply goes on and on. 

Most of the time when this happens I find that the owners have never been to the property and usually are shocked, like they just expected everyone to do their jobs well with no supervision. If you don't care, and some truly don't, fine, that's your business. But more often than not, once showings begin, we get lots of showings and no offers. Because it looks good in photos but awful in person. Again the outcome, sits on market forever, holding costs add up, hopefully they make money but it's far less than I had told them (because I'm using comps that were  decently remodeled and expect the same) and in the end they usually blame me. 

#3) They don't have a plan before they begin

The primary problem here is similar to problem #1 but the reality is not knowing how much the house will sell for when it is finished. It's not a perfect science but 90% of the time you can find comps that have been flipped and if researched properly you should be able to get within 1-3% of the final price (barring poor workmanship mentioned above). But I find a lot of flippers just look at one or two comps, don't do any research on their own, and just assume that if they do more work they can just raise the list price to offset their costs. It doesn't work that way. Market economics, supply and demand, appraisals, are all going to set a general cap on the MAX price a particular home is likely to sell for. If you start with that number, and work backwards, you can practically guarantee that you make money. But most of the new flippers I work with work in the opposite direction. They start with how much they paid, then they add their costs, then they tell me what they want to list at. And, remember #1, where even if they got lucky and could still make $10-$20k on the deal, many of the inexperienced ones squander all their profit on holding costs and lost time on market resulting in lower offers. 

I think it's interesting because when Brandon was asking this question, most of the people are successful and obviously haven't failed (hence why they are being interviewed) and although some have much more experience than me, when I start to see these red flags with new clients of mine, the likelihood of the person succeeding in the long term are very low. There are other reasons related to experience in the trades, knowing what kind of improvements to do or not do, things like that which are more specific to each project/person. But I find these 3 things to be the easiest way to predict if someone will succeed or fail in this business. 

 Hi Patrick, I agree with all pf your observations and respectfully add a few suggestions for those newbies who are reading your post and having a heart attack. First, one of the reasons newbies fail is they do not do the due diligence necessary for any project in life let alone a real estate deal. Many new investors read some books, listen to some pod casts perhaps attend some meetings and they immediately strike out to do their first deal. While all of those activities are valuable in acquiring knowledge on how to rehab and flip a house, they are no substitute for experience. I suggest that anyone wishing to chart a course in the real estate development industry find a mentor someone with significant experience and utilize their wisdom in preparing and executing on your first rehab. 

Human capital is greatly under estimated in the rush to make money in the rehab. industry. Newbies should start by assembling a team of people who are experienced in each facet of the process.   Among others you need a good real estate agent experienced in investor properties. Add to that a insurance agent who understands the needs that you will have for liability insurance. Than find a contractor and get references and view examples of their work. Connect with a strong mortgage broker, banker or originator who can help procure the funds you need. Lastly, make sure your accountant is familiar with the rules relating to investor real estate so when you successfully complete your fix and flip you get to keep the money not Uncle Sam. Only after assembling this team should you be submitting offers for a property. Once you have submitted the offer and it is accepted you will not have the time to organize the transaction to insure that it is profitable. 

Folks, you  first rehab. is a trial run. Start small and practice before you decide you are buying a property for 250k rehabbing it for 200k and selling it for 700K. I hope you get my drift. Good luck. 

Hi Jack: Yes there is a market for JV Partners, second mortgage lenders are anther story. The problem is simple; What do the borrowers have for collateral to support a second mortgage on a half finished rehab.? In our market we have a business purpose lender who will make a second mortgage loan on a partially completed rehab., if and only if, the borrowers have other valuable collateral. That includes a second on the partner homes. The other issue frequently pouring water on that market is mechanics liens in contractor friendly states.

The partial rehab lender we use charges minimum 3 points and 13 percent Interest only on funds advanced
adjusted monthly. . So it is expensive. They also require inspections before draws. Hope that gives you some food for thought.