Finally!! An REO acquired

[Rich Weese]

As many know, I moved from TX to FL to buy RE about 1 1/2 years ago. Bought a self storage facility before moving here. It has been great.
I was trying to buy foreclosures or reos on sfrs also. It has been a pain in the butt. Tricky lenders, realtors and most properties turning into auctions or taken off the market.
Finally acquired a 4 br- 2 ba- 2 car in Cape Coral. for 61K. It took Wells 4 months to close.
I'm posting this from start to finish and I think it'll be good, but not sure it is worth the time and hassle. Closed on 2-23. Demo portion will be finished by 3-15 and projected re-hab is under 10K. Expect to list in the 90's.
My friend Will listed a re-hab start to finish in CA with a 90K profit. This will not have that obviously, but I've always been more concerned about % of profit. These smaller homes also allow almost anyone to do one, due to price range. I would hope I might net 15-20K after all is said and done. Depending on # of months to sell, I think annualized return will be very comparable to Wills' but it wasn't easy to find this home. More info to follow.
If this works well, I might have my asst. continue doing them. If not, I have a different idea for investment. Good fortune and fun to all. Rich.

[Rich Weese]

Bryan,
I really lucked out with my asst. Way back in time, I posted a thread here on BP looking for an asst and received many great replies from members. I followed up on many.
I was in the process of purchasing a self storage building in FL from a 3 person partnership. These 3 had built and managed the property and consisted of a man, his wife AND the wife's brother. The couple were divorcing and allegiances were split and property was being sold.
The wifes' brother had overseen the property for 10 years while also holding down an excellent job. He was also a realtor. About the same time, he lost his job due to constriction. I wanted to keep him on since I knew zero about a storage facility.
He couldn't survive on what I'd pay for facility manager. He had also done bookkeeping , const and mgmt. I worked out a deal where he'd oversee my apts, sfrs and subdivision while maintaining office at storage facility.
This worked out well and he had more time available. We wanted to come up with another income stream. He asked about me doing hard money/transactional loans with my money and he'd do the work. I told him my previous involvement doing those loans with Will had completely turned me off. He knew I'd done a lot of rehab/flips in TX.
We reached an agreement where we would try one all the way through, using my money and his time. His pay would depend on total % profit. We'd look at it when done and he'd determine if he wanted to do more. He has enjoyed doing it and looks like he wants to continue. Having a Brokers license, he'll be able to find the property and collect a commission- which won't cost me any extra. He'll also have an opportunity to make a % of the profit.
That is how we ended up where we are. As long as he wants to continue, we will. He has found a 2nd property in the meantime. We'll see. Rich

[Will Barnard]

Originally posted by Rich Weese:

We wanted to come up with another income stream. He asked about me doing hard money/transactional loans with my money and he'd do the work. I told him my previous involvement doing those loans with Will had completely turned me off.

Rich is right. We were both turned off that neither of us continued this venture. Although to be accurate, we only did transactional funding which consisted of 100% of our money and none from the borrower. I believe that in hindsight, this was the biggest problem. The borrowers had no skin in the game and many ended up being crooks and setting up fraudulent deals. That said, I think doing hard money loans for other flippers with successful histories and their own skin in the game is a worth while venture Rich, IMO. Of course, if you have an assistant who can run and manage rehabs for you, that is better because you get a bigger slice of the pie.

Sounds like you hit the jackpot with such a find. It also sounds like it was a win win for both sides since this guy needed a job and could do many of the things you needed. That is great to hear.

Let us know how the flip transaction finally settles out.

[Jeffrey K.]

It is great to hear people talk about transactional funding not going so well. I think many of you guys have told people with a lot of cash who asked what to do with it to try this because it had no risk. I guess it does!

Making loans is risky. The way guys make money doing is by spreading it out over a lot of property which takes a lot of money (millions). For most people to make a few loans a year (one at a time) make no sense and is too risky.

I always tell new investors that you should start with a rental that needs some work. This will teach you about all the parts of this business with LESS RISK. There is still risk, but if you buy in a good area and follow the advise you get on BP, it should not kill you. Once you have tried the rental and the small rehab you can figure out where you want to take your RE business.

[Will Barnard]

Originally posted by Jeffrey K.:

It is great to hear people talk about transactional funding not going so well. I think many of you guys have told people with a lot of cash who asked what to do with it to try this because it had no risk. I guess it does!

Let me be clear that the only deals that went south for Rich and I were the longer term 30 day deals. NONE of the next day back to back flips ever went south and we made lots of money on them virtually risk free because the instructions to the escrow were always, lender funds not to be released until buyer funds received in escrow. This made those transactions 99.9% risk free.

Now, back to Rich's topic/thread at hand . .

[Rich Weese]

I've shared my feelings on transactional funding in other threads-this isn't one of those... There were other reasons why this lending process was in trouble from the beginning.
Back to the thread. This property closed while I was in Europe on the 23rd of May. The address was 204NW 7th street, Cape Coral.
Purchased 2-23, so 3 months start to finish. The purchase price was $61,000 and less than 10K in rehab . The net return on the 70K investment was just under 20K.
You math nuts out there, 20K on 70K in 90 days is about 29% or 116% annualized. Correct? Even with the mistakes maid and outlined above, a decent return with little risk-since it wasn't a 400K property with rent upside of $1800..
My asst wants to do this again, now that he has some experience. I'll fund and he does the work. He'll receive a % of the profit in the future, based on a formula I set up for return on my money. The higher return, the more he makes. We'll see. Rich
p.s. The buyer did have to come up with funds above what lender would allow/fund.

[Rich Weese]

http://www.biggerpockets.com/galleries/show/13048

I'm spending today learning how to create galleries and post pictures. Four hours later, I give up on the individual links for each picture! I hope this link will work yo show before and after photos of the rehab in this thread.

I wasn't really planning on documenting the process, so not very many pictures and not very good. Oh well, here they are.
Tile, granite, flooring, paint and landscape as well as interior fixtures.

Rich

[Steve Babiak]

Rich,

I had no problem seeing those pictures - so you were able to get them posted alright I see.

Looks like the first few are before (brownish tan counters), and the last few are after (darker / black counters) - Is that correct?

[Jeff B.]

Looks great Rich! My father-in-law lives in Cape Coral about 2 miles away from this property. He's been begging me to invest down there. However, everything I read is that the market is so depressed and the vacancy rates are so high that it doesn't make sense.

What you are showing is that maybe I shouldn't believe all that I read about that area and perhaps I should look into it. HMMMM...

[Rich Weese]

Steve - thank you for your help in getting pics shown.

Jeff B- The difficult part has been finding enough properties to make it worth the effort. Picked up a new lead today that will help,,,,maybe. Rich

[Will Barnard]

@Jeff B - You mentioned vacancy rates in your last post. Just to be clear, the investment strategy for Rich on this deal was to flip, not buy and hold, completely different ball game where vacancy rates have no bearing.