All Forum Posts by: Steve Wilcox

This sounds like they are actually looking for Gap financing. 

Some investors will secure a hard money loan in the 1st position, then will borrow money from other people to cover the difference between the hard money loan and the actual cost of the project. 

You are unsure of the ARV by 20%, has there been an appraisal completed? I would make a borrower pay for an independent appraisal if I was unsure, this is what all hard money lenders would require and so should you.

What is the purchase price, what is the rehab estimate? Who is his back end lender, and is the house flip able in the event you need to take it back?

What position will you and your money be in? 

Finally lets looks at the financial info- You put out 15K, in less then 3 months you get back 25k? That's about a 66% roi and if you were to annualized it it would be a 240% return on your money, which seems to good to be true. Why is he offering to pay out so much, if the person is experienced why would they give away the whole deal?

I have been a private lender and a borrower and I can tell you that I would never pay out an ROI that high unless I was desperate for money (which is a huge red flag for a lender).

I am a newark investor in the city every day, PM me if you want to stop by one of my projects or grab a cup of coffee one day while you are here, or any other newark investors. 

I buy rehab and hold in Newark

You need to input 10% or at least 1 month of vacancy. 

You also need to have some idea of what it will cost ot manage, even if you self manage, pay yourself as the manager so that someday when you do not manage it there will be profit. 

All in all for Northern NJ this is a buyable deal. Make sure to get some comps from your agent to verify the value of the property and find out what the market rents are for the area. 

Some things to look into would be requirements for flood insurance, rent control, ect. 

For north jersey your rents seem very low which also could give you some upside if you decided to renovate and move in new tenants (as long as your not rent controlled)

Make sure the owner has been actually receiving the rents regularly, and ask for estople letters from each tenant. 

@Ahmad H. I am curious who is financing properties for you at 5-10% down? 

Home Depot is generally the cheapest for basic stuff. 

I also strongly recommend Thunderstone Tile in Elizabeth NJ. Ask for Sam and reference me and he will take care of you, they are reasonably priced, he has lots of stuff to choose from in his showroom and has a good sense of design and color to help pick stuff out. 

If you actually have 1.2 million and no experience and poor credit, why not put your money into an experienced developers deal. Syndications are based on exactly what your situation is- ie. someone with money but not time, experience, or credit, to borrow against. If you want info on some live deals like this feel free to PM me.

If you can get into a non recourse situation your personal credit and income is not going to work against you as long as you have sufficient capital reserves, and you look like a real person on paper. If you show no income, no assets, have no experience operating property, and poor credit score, you could see why banks may be hesitant to want to do business with you.

If you want to run your own deals, I would recommend calling on at least 10 banks that are actual players in the area you want to buy in, be open and honest about what your plans are and ask what it would take to get into a deal. (maybe a lower LTV, maybe higher interest rate, maybe PG a portion of the loan, ect)

P.S.- If you are looking for a 10% cash on cash return from a currently performing asset in Manhattan you are looking for a pot of gold at the end of a rainbow.

Also I know @Joe Fairless   has lots of knowledge on this subject and maybe able to help you out. Look him up on BP and PM Him as well, maybe he will chime in this forum post to help also 

You need to set a determination in your mind of how much longer you can continue to drag the process on before firing the guy, and moving on. Talk to the guy about how you feel and that you need to move on if he is not going to perform work. If he is a god guy maybe you can work something out, if not you can try to sue him, but in these cases he is doing everything he has to to 'be in the right' in terms of the law. 

I own a GC company as well as being an investor, and got into that business because I had background in it and was sick of other guys jerking me around and messing with my time tables on my investments. I have sat on both sides of this table and let me give you some thoughts.

1. As @Doug Shapiro noted its not worth your time to try and sue the guy (but the threat can be powerful if hes an honest guy)

2. Often homeowners do not understand work completed by budget, especially early in the project. 50% done in terms of payment and rough work does not necessarily look like 50% done to someone unfamiliar with construction. 

3. in the eyes of the law if he shows up for 1 hour per week he is doing the minimum required. (I have been on your side on this issue and I know how frustrating it can be)

This could be a lesson learned for you, make sure you work with qualified contractors who have a real business, not the cheapest guy you can find who has 2 buddies with him in a beat up panel van. So many investors are lured to the cheapest price, and learn the hard way that there is a cost (i.e. time has a cost, and eventually you always pay).

Being in this business is heavily involved with construction, and in some regards I would say a good rehaber needs to have the knowledge of the construction process, how to manage the payments vs completion effectively, how to keep quality of work high, ect. 

If you have no knowledge of the process and you want to go with the bottom of the barrel pricing you are going to get an education from the school of hard knocks. 

For larger deals there is no 'MLS' like in residential that all properties go through or are typically listed on. The stuff that makes its way to loopnet is the junk that brokers couldn't sell when they showed it to all their serious clients.

Call the local COMMERIAL brokerages, and set up some meetings with brokers to go over your criteria, what exactly you are looking for, how you plan to close, ect. Be prepared to show you are the real deal, if you are looking at 50+ units you should have some cash behind you, and the ability to close. Many brokers are afraid of getting involved with newer investors because they are worried you will not be able to close on the deal, which will waste time and make them look bad with the owner who gave them the listing. 

I would not deploy capital at anything less then 8% annual cash on cash returns. 

I find it difficult to find a property that is actual cash flow positive in any of those type of areas. I know morris county has very low taxs (for NJ), but if you do a rough estimate using the 50% rule which means that in the long term expenses will be about 50% of gross income from a property, then you subtract your debt service from that you need to be making about $200 per unit to make it worth the hassle of ownership.

You can also look into putting some money into a bigger deal or Syndication on a larger commercial space which you might find some better metrics then residential properties in blue ribbon school districts in North Jersey. We work on some mixed use, and light industrial properties where investors get a perfected return for putting money up and a piece of any upside for strong performance or profit from sale, but our investors are limited partners looking for truly passive investments in real estate. 

You need to determine your level of investment (both capital, credit, and time), and that will help you determine what options you actually have in front of you. Understand how much cash you have on hand, how much time you can put into a deal, and what if any debt you may qualify for to leverage the cash you have. 

P.S. I do not want to dissuade you from Newark, or any other newbies, but people do need to understand that while the numbers may pencil out, it takes a lot of work and support to hit those levels of returns. For the person from a high end area you may not be prepared for what you have to do to be successful in the affordable housing market. 

No guru programs guarantee success. The REI business has been around for centuries, there are really very few original ideas or concepts.

If you have money the best way to learn would be trying to partner with an actual experinced developer, put some money into a real deal and be there every day throughout the whole process. Make sure your partner puts some skin in the game btw

There are no shortcuts, if it were as easy as paying for a course and then you got a secret sauce that made you rich there would be no BP. Also as suggested check out local REIA events

Hi @Rita Droz , I would say that Newark is a unique challenge, and not for the faint of heart. Affordable housing in low income areas is a very management intensive process, and you need to have the right management team in place. Be prepared to deal with lots of repairs, lots of BS phone calls, people trying to duck paying their rent, ect. I have enough properties and a great team in place of managers, handyman, and own a general construction company so dealing with those issues is easier for me than for many others. I also am a full time investor who is committed to dealing with these challenging issues and delivering a good product to very under-served market. However working in this area is defiantly more work and more challenging then other areas. 

If you want to work in that area I would suggest you partner with a more experienced developer, and/or interview lots of managers to find the right fit. This area is not for beginners, but there is alot of money to be made.

If you are just looking for one or two passive properties that you can self manage I would steer you towards an area more like morris plains or boontown. I tries looking out there but have never found anything with strong enough returns excite me or my investors, but you will have a much easier tenants.