I Need Help
In November I got my first investment property under a six-year lease option. My terms with the owner were such, that I have no
payment due to them until 01Jan04. Going in, I knew that there were
repairs to be done. Near the end of November I found a contractor
for the sub floor repairs and paint ($1000 labor, $500 materials)
and a company to put down the carpet ($930). I priced the material
at Home Depot and found that I would only pay around $350. So I have
cut my expenses there by $150. The woman that cleans my personal
residence gave me a quote of $100 to do this house. My figures so
far do not include the hot water heater ($250) that is needed or the
shower and tub kit that is needed ($220).
Last Monday I was given a lead on a family that is interested in the
property. I showed the husband and we threw around some numbers. The
end figure came to be $2480. ($1500 option payment, $650 first
months rent, $330 Dec pro rated rent).
I am not seeing a way to cover material, labor, and the payment
coming up on 01Dec04. I am actively looking for some way to
finance this endeavor. If any one has any suggestions, please let me
know ASAP. I need to have this family in by 15Dec03.
The things that I have tried are, getting credit under the
LLC...company has no history, so that has not worked so far.
I will look for a carpet store that does in-house financing or a
finance company that will give the LLC a line of credit.
Thank you for your time.
Tee Williams
Msrealtee Intl LLC
It sounds like you either need a bigger option fee or bigger rent or both. How about getting a line of credit and make pmts on the repairs and make it up over several months? Thats all I can think of.
It is a bit difficult to help with out knowing the numbers. But if you are just looking for help covering the current repair expenses/payments and you can't get a line of credit from conventional sources, then you need to tap unconventional sources (e.g.. credit cards, private loans, etc.)
What were your plans (exit strategy) before you got into this deal? That is, the numbers should have all been crunched before you got in.
It sounds like you need very short term financing, if I understand what you are doing. If you need small amounts for short periods of time the previously suggested credit card route may work. You need to run out the numbers to be sure you have a meanns of payoff.
You didn't give any details on the terms of your option purchase. You also mention that the numbers you and the husband tossed around include an option payment. Are you optioning to the interested family?
If you have a six year option it sounds like you may have an interesting and potentially profitable deal depending on terms and market in your area. More details may be helpful.
Your contractors should be able to do the work and be paid later. Although the best way to build a reputation with a contractor is to PAY QUICKLY, some understand and are willing to work with you. I financed nearly 70% of my previous rehab costs (not aqusition) with contractors.
It sounds like with all the books and get rich quick tapes out there advertizing you dont need any money to do REI, people are thinking its easier than it really is. John, Darrick, Joel; if your reading, does anybody talk about the real liabilitys that are associated with buying property? or are they afraid they wont sell their books or tapes.
Im noticing a pattern of many of the new investors that are making posts- they are not counting the costs BEFORE they enter into a transaction. Some folks have goten themselves in real jam, and need not be led to beleive there are no pitfalls
surely one of you already published guys could make a good profit by writing a book on what to look out for and planning ahead, some of your real life experiences as opposed to the "pie in sky method"
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B.G. & Wheeler D. LLc Inc.
(A division of: Half Vast Enterprises)[ Edited by WheelerDealer on Date 12/07/2003 ]
Thank you all for responding. Some are asking for the numbers...here goes...
I offered the original owners 50K under a six year lease option. During this option I pay the PI($465) and they take care of their TI($280apprx). 100% of my payment goes to the sale price. I asked that they take care of repairs over $200 during the option. First payment is due 01Dec04.
My BT that I have lined up....$1500 option payment, $330 for Dec prorated 15days, $650 first months payment. Because he helped with some of the materials($200 worth), I negotiated on the monthly amount to $600. He will be responsible for any repairs under $200 during the option. I will credit them $100 per month towards the sales price (which will just be deducted at the time of closing) They will be able to exercise the option after 12 months, if they do not they will auto renew for another 12 - 24 months at $650. My asking price is 60K.
I am interested in finding a possible private investor to help me out with this financing. I really want to do everything that is needed to get this home comfortable. I feel that that would make things flow much smoother in the long run. I am not looking for a big profit upfront. I can get my profit over time. [ Edited by msrealtee on Date 12/07/2003 ]
msrealtee, you set it up well in how you negotiated times and built the deal, but i would've liked to see you charge a bit more on the monthly. 650 is already close but then u trimmed it down 600 (over the year) for his $200 help in materials, this was a good deal for him but it hurts for you - being that you're so close to your PI already. Also good that you don't have to do repairs under or over $200 ... slick! if you have to live with this and can't change, then it's ok. congrats! go on to the next one and hope he doesn't miss a payment, or leave early for whatever reason.
wheeler: man, you love being controversial!! hahahaha. wow. look, i see posts and articles everyday that stress the "risk" involved. if you don't, maybe you should read a bit more. (no, i'm not being an a**hole). besides, when people shine the bright spots on rei, it's not to say you should go blind into it. they're assuming people are alert enough to do thier due diligence before getting in the middle of people throwing around tens and hundreds of thousands of dollars.
common sense is all anyone needs in the world, really. sometimes even with this, people will slip up or not do as well as they could've. it goes with the turf, maybe next time they learn from it and make $50k on a $100k deal! at least we all hope ... right?! i hope.[ Edited by jackman on Date 12/07/2003 ]
I agree with jackman. Congrats on the deal. It sounds an awful lot like Conti & Finkle's style. However, I would seriously build in more profit for yourself in future deals.
BTW, you never mentioned how much are you short.
jack,
It has nothing to do with contraversal, as much as the pattern i am noticing. I would like to hear more about the back end of supprting a deal as opposed to the making and finding of a deal. That part is easy. Yes i do want to hear about "risk", handling it that is. it seems like 90% of the posts people are in jams. Some not all, jams that appear to be easily avoided with education There is not another buisness that requires so many different trades and political entities to make deal from start to finishI like to see people For example: a sub 2 is great but what about actually being responsible for the payment when your new buyer defaults. The collecting of the new escrow. keeping up with taxes and insurance going up.
If you do a carry back and you need to forclose. being filed on for bankruptcy. etc.[ Edited by WheelerDealer on Date 12/08/2003 ]
i hear you man. if you feel so strongly about it, why not write an article and submit it, as just what you said - a way to protect newbies on the backside of a sub2 deal. maybe it'll fly off the shelves, so to speak. this is "creative", if there's something that needs addressed, address it!
i laff when i hear ur comment and then look at ur avitar because they usually fit. i have a friend who you remind me of and he usually HAS a black eye and some missing teeth - hahhaha, not for challenging people but for gettin into fights because of how he talks to people. hahahaha. not sayin this IS you, but just sayin, that ur picture is funny and it does go with ur replies!
by all means, good luck in all u do, man. maybe u should pursue comedy on the side
Could be me. I always look at all the angles and ask a lot of questions. thats how i made my money when alot of my friends are broke. i am the devils advocate for the purpose of education not to be a pain. The written word doesnt come accross as well as having a conversation in person. my intent is not to offend anyone but to learn and as a by-product, hopefully make others think.
oh, when i do get enough experience i will be writing articles that adress those issues......untill then put your boxing gloves on!!
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B.G. & Wheeler D. LLc Inc.
(A division of: Half Vast Enterprises)[ Edited by WheelerDealer on Date 12/08/2003 ]