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My investment situation.... need professional help

By austin ellis

Real Estate Agent with David Ellis Real Estate

January 31, 2009 05:50 AM

Ok, believe it or not, I am a realtor. I am fairly new and was doing it part time, but now am doing it full time. So am still learning alot. But anyways, heres my situation as of right now.

I am 22, my friend is 22. We are both going to do a rehab together in dallas. We have about $15k - $25k together depending on things. So we want to do a rehab that is around $50,000 - $80,000.

We have income, however it does not reach the 28/36 bracket. So there goes conventional financing option. We have found some hard money lenders but they are all like literally 18% with 20% down (seems absurd).

We have found a private investor, but he has since flaked out on us.

Where can I funds???????? or how can i get this done?

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Reba Haas

Team Reba of RE/MAX Metro Eastside www.TeamReba.com - Bellevue, WA

Team Reba, CDPE

You don't mention if those funds are only available for the purchase or are total for your purchase down payment and rehab funds. Sounds to me like you should hold off till you can do better and not have so much risk. You might, instead, find a group of like-minded investors if one exists in your market and learn from people who have been doing it awhile. All too often new investor types like yourself are much more energetic than savvy about the process and risks associated.

Rehabbing can be quite a good investment strategy but it is high risk for the reward and you should understand all facets of it before moving forward. I've seen too many people fall on their face (and finances) by making rookie mistakes.

Jan 31, 2009 05:57 AM

austin ellis

David Ellis Real Estate - Dallas, TX

yes, i understand what you are saying. I have been looking for the perfect deal every day for about a year. And I have found 3-4 of them, deals at around 50% LTV that are smaller and with more minimal repairs. But i have not been able to act one them. And I would definately get a good contractor for a very reasonable price.

I guess my real question is, is there a place or easy way to find a private investor at around 10% interest, or find a person and do a LLC where they get loan and pay that but we would pay all rehab cost? Cuz our $ is everything we have total by the way.

Jan 31, 2009 06:02 AM

Barb Van Stensel

Chicago, IL

You're going to be hard pressed at 10% interest. No private investor would take a gamble on something where it appears that there is no real plan of action on what, how, etc. Who would pay the carrying costs? Do you have an estimate of all the charges, costs, permits, for the project for an investor to look at? do you have a background where you can show the investor(s) that you can succeed in doing this? Have you thought about the market's reaction to you trying to make money by making small changes (50-80K) on a property and then reselling it for a good return?

Here in Chicago, there are wholesale buyers trying to make money off of someone elses misfortune and the consumer "blackballs" the property. It can get pretty sticky. Have you considered what the investor would do if you couldn't get this property sold? Do you have a time frame?

I agree with Reba. You can think we are turkeys, idiots all you want but we've seen rehabbers with years under their belt loose everything.

My strong suggestion is get everything in place, with your credentials, if you want backing but you would be considered high risk. Work on thoughts that would be accumulative actions instead of actions. I've seen this time and time again here in Chicago.

On the wild side, are you prepared to loose all your monies because that investor would have title to the property and you could end up with nothing.

I'm not being negative here. I'm objective.

Jan 31, 2009 06:32 AM

austin ellis

David Ellis Real Estate - Dallas, TX

ok... i understand and appreciate the critism. But i do totally understand that it would and will be a hard task. But this is a life goal of mine, to be a successful investor in real estate and not just simlpy an agent. As of right now I have a buyers list of 200+ investors in the dallas area. So i have already but that up pretty good but would like to get 200 more or so.

I understand the gamble too, I just would like to find even a hard money lender that would do like 10% down even. Because 20% down and 18% interest would take more than all of our money. I have looked at it from every aspect, and seems that even if I break even which would be worst case scenario as I would make damn well and sure that it was an amazing deal, I wouild learn a ton and get my feet wet.

I would even do like 15% interest with 10% down plus property backed loan (obviously). Should i advertise this on craigslist or something? or is their other websites that anyone knows of?

Jan 31, 2009 09:32 AM

Kevin Meissner

Total Freedom Realty® - Coon Rapids, MN

Hello Austin,

The financing is a key part of any real estate transaction. You might consider "wholesaling" the property to another investor and earning a finders fee for assembling the deal. That would pose less risk to you. This will also develop your network. You can then ask to observe the rehab project and subsequent marketing to learn about what works and what doesn't. Make sure that you control the property with a written contract before wholesaling so you don't get bumped out of the transaction. You assign your rights to the contract for the finders fee.

You can Google hard money and interview other hard money lenders. Is the existing financing assumable? If the financing terms are good assume the existing loan. There is no loan origination fee. You might pay a small fee to the lender for document preparation.

Partnerships are very dangerous. Spend a lot of time figuring out your partnership. What is the exit strategy? Define who does what and when and get it in writing. Also define who pays what and get it in writing. Consider a formal partnership agreement prepared by an attorney. What if your partner bails on you in mid transaction? I had a partnership that I had to terminate by hiring a real estate attorney. I was very lucky to escape cleanly. You have double the liability in a partnership. You also have to pay taxes on the profits in a partnership. Consult a CPA on how to do this.

What is your spread or profit? Right now I would buy very low, fix, and sell low. That is calculated before you make your offer. I won't even blink unless the spread is over $30,000 on low end homes. Anything less is too risky.

Feb 10, 2009 07:16 AM

Denise Gray

Realty World Alliance - Wichita, KS

Realtor SRES, Wichita Kansas Homes

Go to the current owner and agree upon a current condition price that you will pay once the home is sold. Then list the house at the post flip price and take your cash and do the rehab. Protect your interest by recording a vested interest on the property.

Now all the above depends on finding a home owner willing to let you do it.

Feb 18, 2009 03:22 PM