Would Like Input On Investment Idea
Ok I think I have a good REI investment idea here and would like all of your input on it. Now I am pretty proud of myself so go gently on me if this isn't a unique idea lol.
I thought of this after contacting some FSBO's. I went and looked at a few and found that they were in decent to below decent shape and needed work to bring them up to FMV. Once I ran the numbers I discovered that I could net 5-12K after comparables were done. This equals Seller price+ fix up costs+marketing/realtor and selling about 5% below FMV.
The problem was I didn't have the cash to buy the house and do the fixup and hold it. So I got to thinking that maybe I could offer the owner a Joint Venture Deal. How it would work is this. We agree in advance on the amount they will get out of thier house. I agree to come inand do the fix up on the house and pay the realtor costs. When the house sells they get thier money out of the house, I get my costs back and then the profits on the house are split like 90-10 ( Me being the 90 of course). My thinking is the work I do will A) improve the value, B) help the marketability of the house and C) hopefully lessen the time needed to sell it.
Is this a vialble idea? Have any of you done this sort of thing before? any advice what to watch out for and of course pleae someone play devils advocate
Thanks
joe
[addsig]
Haven't yet done it, but am doing it. I am a Realtor that deals with foreclosures as well.
Example:
Purchased for 140k 1.5 yrs ago(purchased overpriced FSBO)
FMV: 145k
Owed: 142k
Listed at $139,900
Going to try to short sale to $120s
After 5% comission, net will be around 133k
profit of 5-7k, that profit will be split 75/25 with homeowner.
Like I said, haven't done it yet, but am going to do this more consistantly as a way to get listings, make commission, and have more willing sellers for short sales.
Quote:
On 2004-12-05 14:57, joefm26 wrote:
Ok I think I have a good REI investment idea here and would like all of your input on it. Now I am pretty proud of myself so go gently on me if this isn't a unique idea lol.
I thought of this after contacting some FSBO's. I went and looked at a few and found that they were in decent to below decent shape and needed work to bring them up to FMV. Once I ran the numbers I discovered that I could net 5-12K after comparables were done. This equals Seller price+ fix up costs+marketing/realtor and selling about 5% below FMV.
The problem was I didn't have the cash to buy the house and do the fixup and hold it. So I got to thinking that maybe I could offer the owner a Joint Venture Deal. How it would work is this. We agree in advance on the amount they will get out of thier house. I agree to come inand do the fix up on the house and pay the realtor costs. When the house sells they get thier money out of the house, I get my costs back and then the profits on the house are split like 90-10 ( Me being the 90 of course). My thinking is the work I do will A) improve the value, B) help the marketability of the house and C) hopefully lessen the time needed to sell it.
Is this a vialble idea? Have any of you done this sort of thing before? any advice what to watch out for and of course pleae someone play devils advocate
Thanks
joe
Joe,
What type of timeframe?
Where do the owners live while working?
You pay costs? Get reimbursed? Type of documentation? Pay self or not? Carry insurance on self in case of injury?
So, if I am seller, I say sure, you show up www.Mon.morn. and get to work on your dime, I breathe paint and dust and cover my stuff? or am I gone? and then you work hard and fast and bring your Realtor in, list, and bring me contracts. I am now relying on you to show me your share, right? You have a spreadsheet on all the costs and commissions, etc. So, I call it a cost to sell on my taxes and for all that I got an extra 500 bucks and my place sold. Am I close?
Good questions! Let me go through one at a time
1)What type of timeframe? - Would depend on the amount of work needing to be done. A schedule of work to be completed would be done before deal went into effect
2)Where do the owners live while working? Again depends on what type of work being done. May require them to stay at a hotel or other lodging until work complete. In some cases the property may already be vacant making it a mmot point. They pay for the lodging
3)You pay costs? Yes Labor and materials .Get reimbursed? Yes at closing. Lien is put on property for amount of work done Type of documentation? Use joint venture agreement that will be filed. Pay self or not? Profit comes from selling house for above the price the seller wants to get. Carry insurance on self in case of injury? Contractor carries insurance.
You are essentially correct on the other points. You could either call it a cost to sell or also send out a K1 formor once a price is agreed upon, I could place a new lien on property for full amount including my costs and profits. That way all you take out of the deal and have to pay taxes on is your original share plus any profit you make.
joe
In the right areas, with the right sellers, with the right docs, seems like it could work. Create a win/win, since sellers don't have the cash until the sale, and you don't have to pay costs of control. Since you are getting all of your costs including labor costs and realtor costs, the split might have to be more equitable. You could tap into the markets that would be using a Realtor, but could benefit from this type of win/win (aging parents, repair challenged).
Be sure to protect yourself. Once you and the homeowner are in agreement (and before you start any work) make sure to get everything in writing. You could set up an LLC, place a lien on the property, or set up a trust and put the property into it.
Make sure that you don't put time and money into a property that could be sold (by the homeowner) leaving you high and dry.
Talk to a RE attorney about the best way to protect both of you.
Good advice. My thought was to file a lien against the property to protect at least what I have in it. If an owner does try to screw me then at least they can't close until I get repaid.
Thanks
Joe