well that was kinda the deal we worked out he built about 5 payments into the total loan. so we dont have to make any payments until after the 5th month, and ideally we will not have it for more then 3-4 months tops. do you think this is why he wants his money from the gross profit? I dont see how building in a few payments entitles him to any % of profits. Built in payments or not he is still getting his money.
well hes also controlling the contracting $ and hes cutting us about $8,000 short of what we really need saying we can cut costs. but we really did cut out costs and nothing is marked up. being he is controlling the contracting $ I dont think he is worried about us marking up the contracting and lowering net profit. I think your right he just likes cake and wants to eat a whole lot more than he should>> So am I correct in thinking this guy is ripping me off trying to get a piece of gross profit. Even net profit is none of his business. Do you guys agree? Or is this sometimes how it works?
I think it is all a matter of negotiation on your part. So you can have a strong say in the deal or not. Dont be afraid to walk away if the numbers do not work out. However, 100% of nothing is still nothing. If the nett amount you stand to make is good for your efforts, then most people would be willing to share the profits in order to be able to do the deal. Frankly, Im willing to share 50% and perhaps more if I can get the deal done efficiently. With more experience you will be able to know what works for you and what doesnt. Congrats on your deal and good luck with everything! (Remember, every point can be negotiated)
I lend like this all the time. It depends on the deal. You said payments were built in and he has excused the payme nt forom now on? Hopefully this is in writing? If not, do so immediately for your protection.
Your cost would really be dependant upon the deal. I normally charge 12-13% and 4 points on a 1 year deal. I have joint ventured also. LTV is a big factor.
as far as LTV here is the situation: I have the deal under contract 75K needs about 28k in rehab and resale value should be about 140 and its in a blue ribbon school houses dont usually last more than 30 days unless you overpriced. what do you think??
One thing I did want to add is if you do the work yourself, get to know some local inspectors and find out what work will require pulling permits and inspections. Every state and locale is different. Expect one for the service change. Some will charge by the circuit or plug. Some even require a permit and inspection to change a hot water heater. Some will not require you pull a permit if you are doing the work as the homeowner.
Again, just do your due diligence and cover all your bases.
Here is an article I submited some time ago that should hel you out.
When working wholesale and flips in the real estate investment community. It is assumed that you already have some knowledge about doing these sort of deals and or you are at least familiar with the concept. Because I am not familiar with all the laws governing real estate transactions in each state some of these steps may not work for you directly or the closing process may be different for you. Please consult a Real Estate Attorney when drawing up a contract.
There, I gave my legal disclaimer.
Any comments, questions or concerns
Advertisement
please contact me directly I always welcome other people’s opinions. If you have a question about a flip and need some guidance then contact me and I will assist you with it the best I can.
1) Introduction
a) What is flipping? The true definition of flipping is finding a property, putting it under contract, and then selling the property to another investor.
b) There are many ways to accomplish the flipping of a contract.
i) Double contracting – This approach is taken when you come across a property that has a large enough spread in it and you would like to protect your interest in it. If the assignment fee is greater than $5,000 then take this approach so the deal is not “stolen” from you and or also Hard Money Lenders do not like to fund flip fees in excess of this amount. Remember don’t get greedy; it still has to fit into our formula if you want to flip the deal
(Arv x 65% - repairs - c/c/cost - af = mao).
ii) Assignment of Contract – Use this approach if all you want to do is flip the property to another investor and you are not profiting in excess of $5,000.
2) Understanding the contract.
a) Reviewing the contract – section by section
i) Special provisions (These are in accordance with Texas state laws and may not apply to where you are at check with a local real estate attorney in your area for more accurate information):
(1) Seller to leave house in broom clean condition, if house is left with contents in it, seller will leave in escrow $500 for clean up fee, with an invoice to be submitted to title company for clean up.
(2) This is a cash offer to the seller, buyer will need access for inspections and appraisal for buyers purpose only.
(3) This offer is subject to buyers partners approval within 10 days of executed contract.
3) Work the formula. Arv x 65% - Repairs - C/C/Cost - AF = MAO
a) Arv = after repaired value
b) Note that if an investor is using a Hard Money Lender for the first time then the Loan to Value(LTV) will be 50% and not 65% as projected in the above formula
c) Repairs – use the evaluation sheet
d) C/C/Cost= carrying and closing cost
e) AF= assignment fee
f) MAO= Max. Allowable offer
g) Even if you decide not to wholesale or flip properties this formula should still be considered when reviewing all your potential deals.
4) Evaluating the comps.
a) Review the comparable sheet.
b) Drive by a couple of your comps to determine accurate value
c) Review the tax record
5) Property Inspection and Bid Form
a) Condition - Assess the condition of the house and take pictures if possible
b) Repair estimates – is a separate 3 page form that I use when making my initial walk through so that I can determine the repair costs. Contact me and I will send it to you if you do not have it already.
c) Exit Strategy – When doing repair estimates keep this in the back of you mind. What you think needs to be fixed/repaired another investor may have another opinion or idea of what needs fixing so try to be conservative here.
6) Carrying and Closing Cost
a) Cost of financing
b) Closing Cost – review of HUD 1
i) Title policy
ii) Escrow fee
(1) Locate an investor friendly title company who is willing to process a flipable contract, not all title companies are willing to work these sort of transaction. Call around or find out this information through your local Real Estate Investment Club.
iii) Other charges
c) As a general rule of thumb I always request the HUD1 statement 24 to 48 hours before closing so that I may look over it myself to make sure the Buyer and Seller fees are correct and my flip fee is indicated correctly
7) Assignment Fee – The investor needs to know:
a) Complete address with zip code
b) Photos of front and back of house as Hard Money Lenders require this when lending generally
c) What does the property need to reach max re-sale?
d) What amenities does the property have?
e) What is the projected cost to get max re-sale?
f) Why is seller selling?
g) What is your position in the deal?
h) Is title work working or complete?
i) Are there disclosures the buyer needs to know?
j) How long has property been on the market?
k) You (anyone) should not expect to make a profit if you don’t provide something we, the Investors need to make an intelligent decision.
l) EARN IT, AND YOU WILL RECEIVE IT!
8) Looking for properties
a) Drive-by
b) Newspapers
c) Referrals
d) Rentals
9) Finding owners
a) Tax record
b) Mail a letter to the home owner
c) Online services – www.KnowX.com and www.Anywho.com are good to start with
d) www.deadleads.com - Could not resist the free plug
10) What to say to the owners.
a) Be up front and honest
b) Determine what it is the buyer is wanting from the sale, learn this skill and you will be very successful as a real estate investor
c) Creative real estate needs creative thinking in order to be successful. Think out side of the box and you will be successfulnull
[addsig]
I think it is always a good idea to have a few buyers lined up before you proceed. You are right in having the thought that the first buyer might back out...certainly you want to go into this with a positive attitude, but you need to have a back plan (or two) or you will have to close on the property. In this situation, though, if you have this group that is looking specifically for properties, have them review the deal before you lock it up...then get a contract to assign it to them right away...then you are more protected.
If you attend one of your local real estate investing club meetings, you can find lots of good contacts for some of the other people you are looking for. I think the Title company will be one of the most important contacts...but again if you have a group looking for properties, they should end up doing all of this work, you just get the property under contract and assign it.
It sounds like you are going to make great things happen. Just analyze your deals carefully and make sure that there are no surprises along the wa!!
Gelt Financial. Call Ari Miller 215-357-4955 ext 275.
Tell him Matt Kling sent you...
Good Luck!
[addsig]
well that was kinda the deal we worked out he built about 5 payments into the total loan. so we dont have to make any payments until after the 5th month, and ideally we will not have it for more then 3-4 months tops. do you think this is why he wants his money from the gross profit? I dont see how building in a few payments entitles him to any % of profits. Built in payments or not he is still getting his money.
well hes also controlling the contracting $ and hes cutting us about $8,000 short of what we really need saying we can cut costs. but we really did cut out costs and nothing is marked up. being he is controlling the contracting $ I dont think he is worried about us marking up the contracting and lowering net profit. I think your right he just likes cake and wants to eat a whole lot more than he should>> So am I correct in thinking this guy is ripping me off trying to get a piece of gross profit. Even net profit is none of his business. Do you guys agree? Or is this sometimes how it works?
I think it is all a matter of negotiation on your part. So you can have a strong say in the deal or not. Dont be afraid to walk away if the numbers do not work out. However, 100% of nothing is still nothing. If the nett amount you stand to make is good for your efforts, then most people would be willing to share the profits in order to be able to do the deal. Frankly, Im willing to share 50% and perhaps more if I can get the deal done efficiently. With more experience you will be able to know what works for you and what doesnt. Congrats on your deal and good luck with everything! (Remember, every point can be negotiated)
I lend like this all the time. It depends on the deal. You said payments were built in and he has excused the payme nt forom now on? Hopefully this is in writing? If not, do so immediately for your protection.
Your cost would really be dependant upon the deal. I normally charge 12-13% and 4 points on a 1 year deal. I have joint ventured also. LTV is a big factor.
as far as LTV here is the situation: I have the deal under contract 75K needs about 28k in rehab and resale value should be about 140 and its in a blue ribbon school houses dont usually last more than 30 days unless you overpriced. what do you think??
is this good LTV or what. I figure with closing costs and a few payments built in getting the loan for $110 this would be roughly 75% LTV right??
Thank you all for the replies and valued guidance and support.
Larrynut your action steps and simplicty in excuting before getting the home under contract hit home the most. I know what I need to do going forward.
Please keep in touch and best of luck to all of you.
God bless.
One thing I did want to add is if you do the work yourself, get to know some local inspectors and find out what work will require pulling permits and inspections. Every state and locale is different. Expect one for the service change. Some will charge by the circuit or plug. Some even require a permit and inspection to change a hot water heater. Some will not require you pull a permit if you are doing the work as the homeowner.
Again, just do your due diligence and cover all your bases.
Good Luck
Larry
Whatever the market will tolerate...
How do I gauge how much the market will tolerate (besides trial and error)?
Mark
Is that $60k equity after repairs?
Here is an article I submited some time ago that should hel you out.
When working wholesale and flips in the real estate investment community. It is assumed that you already have some knowledge about doing these sort of deals and or you are at least familiar with the concept. Because I am not familiar with all the laws governing real estate transactions in each state some of these steps may not work for you directly or the closing process may be different for you. Please consult a Real Estate Attorney when drawing up a contract.
There, I gave my legal disclaimer.
Any comments, questions or concerns
Advertisement
please contact me directly I always welcome other people’s opinions. If you have a question about a flip and need some guidance then contact me and I will assist you with it the best I can.
1) Introduction
a) What is flipping? The true definition of flipping is finding a property, putting it under contract, and then selling the property to another investor.
b) There are many ways to accomplish the flipping of a contract.
i) Double contracting – This approach is taken when you come across a property that has a large enough spread in it and you would like to protect your interest in it. If the assignment fee is greater than $5,000 then take this approach so the deal is not “stolen” from you and or also Hard Money Lenders do not like to fund flip fees in excess of this amount. Remember don’t get greedy; it still has to fit into our formula if you want to flip the deal
(Arv x 65% - repairs - c/c/cost - af = mao).
ii) Assignment of Contract – Use this approach if all you want to do is flip the property to another investor and you are not profiting in excess of $5,000.
2) Understanding the contract.
a) Reviewing the contract – section by section
i) Special provisions (These are in accordance with Texas state laws and may not apply to where you are at check with a local real estate attorney in your area for more accurate information):
(1) Seller to leave house in broom clean condition, if house is left with contents in it, seller will leave in escrow $500 for clean up fee, with an invoice to be submitted to title company for clean up.
(2) This is a cash offer to the seller, buyer will need access for inspections and appraisal for buyers purpose only.
(3) This offer is subject to buyers partners approval within 10 days of executed contract.
3) Work the formula. Arv x 65% - Repairs - C/C/Cost - AF = MAO
a) Arv = after repaired value
b) Note that if an investor is using a Hard Money Lender for the first time then the Loan to Value(LTV) will be 50% and not 65% as projected in the above formula
c) Repairs – use the evaluation sheet
d) C/C/Cost= carrying and closing cost
e) AF= assignment fee
f) MAO= Max. Allowable offer
g) Even if you decide not to wholesale or flip properties this formula should still be considered when reviewing all your potential deals.
4) Evaluating the comps.
a) Review the comparable sheet.
b) Drive by a couple of your comps to determine accurate value
c) Review the tax record
5) Property Inspection and Bid Form
a) Condition - Assess the condition of the house and take pictures if possible
b) Repair estimates – is a separate 3 page form that I use when making my initial walk through so that I can determine the repair costs. Contact me and I will send it to you if you do not have it already.
c) Exit Strategy – When doing repair estimates keep this in the back of you mind. What you think needs to be fixed/repaired another investor may have another opinion or idea of what needs fixing so try to be conservative here.
6) Carrying and Closing Cost
a) Cost of financing
b) Closing Cost – review of HUD 1
i) Title policy
ii) Escrow fee
(1) Locate an investor friendly title company who is willing to process a flipable contract, not all title companies are willing to work these sort of transaction. Call around or find out this information through your local Real Estate Investment Club.
iii) Other charges
c) As a general rule of thumb I always request the HUD1 statement 24 to 48 hours before closing so that I may look over it myself to make sure the Buyer and Seller fees are correct and my flip fee is indicated correctly
7) Assignment Fee – The investor needs to know:
a) Complete address with zip code
b) Photos of front and back of house as Hard Money Lenders require this when lending generally
c) What does the property need to reach max re-sale?
d) What amenities does the property have?
e) What is the projected cost to get max re-sale?
f) Why is seller selling?
g) What is your position in the deal?
h) Is title work working or complete?
i) Are there disclosures the buyer needs to know?
j) How long has property been on the market?
k) You (anyone) should not expect to make a profit if you don’t provide something we, the Investors need to make an intelligent decision.
l) EARN IT, AND YOU WILL RECEIVE IT!
8) Looking for properties
a) Drive-by
b) Newspapers
c) Referrals
d) Rentals
9) Finding owners
a) Tax record
b) Mail a letter to the home owner
c) Online services – www.KnowX.com and www.Anywho.com are good to start with
d) www.deadleads.com - Could not resist the free plug
10) What to say to the owners.
a) Be up front and honest
b) Determine what it is the buyer is wanting from the sale, learn this skill and you will be very successful as a real estate investor
c) Creative real estate needs creative thinking in order to be successful. Think out side of the box and you will be successfulnull
[addsig]
Her it is:
Work the formula. Arv x 65% - Repairs - C/C/Cost - AF = MAO
Plug the number in:
$85,000 x 65% - $5,000(guestimateon Repairs) - $2,550(.03 X$85,000)C/C/Cost - $5,000(Assignment Fee = MAO
Gives you:
$85,000 x 65% - $5,000 - $2,550t - $5,000 = $42,700
$42,700 is the max you want to offer on a house worth $85,000 and still make a $5,000 Assignment Fee
HTH
[addsig]
Thanks Larry, That formula is most helpful. 8-)
Hey Baleman,
I think it is always a good idea to have a few buyers lined up before you proceed. You are right in having the thought that the first buyer might back out...certainly you want to go into this with a positive attitude, but you need to have a back plan (or two) or you will have to close on the property. In this situation, though, if you have this group that is looking specifically for properties, have them review the deal before you lock it up...then get a contract to assign it to them right away...then you are more protected.
If you attend one of your local real estate investing club meetings, you can find lots of good contacts for some of the other people you are looking for. I think the Title company will be one of the most important contacts...but again if you have a group looking for properties, they should end up doing all of this work, you just get the property under contract and assign it.
It sounds like you are going to make great things happen. Just analyze your deals carefully and make sure that there are no surprises along the wa!!
Much Success!
Rob C. from Baltimore