How far do you go before you walk away from a deal?

Question

We currently have a SHF (fix/flip) on the market with an accepted offer. Our plan was to close the deal and then take the proceeds to either do another fix/flip, or a buy and hold rental. However, we stumbled upon another fix/flip in a great market, and we threw an offer on it. Since it is a short sale, we didn't think we'd need to do anything with it for at least a few months. Well, within a few weeks, and a little back and forth between the bank and our realtor, we received an accepted offer! Problem is, our money is still tied up in the first fix/flip. It won't be closing in time for us to close on this second fix/flip. I do have some money, but need an additional $$ to start the demo/construction, etc. We've been into real estate investing for a few years now, but not have a really strong network yet (but we are making progress). We have financing in place, but need a little additional cash to get things rolling.

I did reach out to the only contractor I know (that I felt comfortable in approaching), to partner up with on this project, however, he's currently tied up with various other projects. Now, my dilemma is, do we just let this second fix/flip go? I hate to walk away, but I can't use money I don't have yet. (potential cash return after all expenses for us is 90K).

Oh- Also, I tried putting off the closing date for this property until July, however, since it is a short sale at the end of its life, the bank states it will go into foreclosure if we don't close before the end of June.

We've approached family (which I hated to do, since none of them do RE Investing) with no interest to partner on this project.

I'm sure, once my network is stronger, and find other people who understand what RE Investing is about, it would be easier to find others to partner with.

Does anyone have any other suggestions, or have I exhausted my possibilities to pull this deal off?

-Thanks for your time. I'm hoping someone may be able to suggest something I might have missed.

Jonna Weber · Answer

Hi @Carin KVeton - Any chance you can move up the closing on the first house? If not, is a traditional mortgage an option at all for the short sale? Home equity line on your primary? Just a few ideas that come to mind. If it is truly a great deal, I would think there would be a private money source out there. Time to really get into the local networking for future deals! I hope it works out for you!

Darrell Shepherd · Answer

What are the numbers on it? I'd consider doing a JV and bringing the cash if it made sense. Not going to be able to wholesale it, btw. There's going to be wording in the short sale that prevents the seller from getting money and you from doing a substitution of buyer and probably a transfer within 60 days or so. That varies by bank, but is pretty standard.

Carin Kveton · Answer

Darrell- I agree. My experience with hard money has been expensive. We've partnered with less costs. We'd rather keep this project to do ourselves, not so much for the profit, but to keep the risk off of others. I feel there is more risk with fix/flip than a hold property. However, we'd certainly rather partner with someone than get 100% of nothing. That's why I titled my question "How far do you go before you walk away from a deal".... I'm learning that investing requires a different mindset from what I'm used to, which I find very freeing, actually. I have an entrepreneurial spirit and like to think outside the box and problems solve. You don't get to use those talents much working for someone else. As stated, I'd love to close on this deal, but for more than just us. It was a great referral from a realtor I have worked with, and would love to keep a great working relationship going. Also, Darrell, I agree. I have yet to do a deal with NO money out of pocket. I'm sure people can do it, but we just aren't there yet. Thank you all for the suggestions. I'll keep you posted.

Carin Kveton · Answer

Rick- great idea. Honestly, I haven't been using BP much in the past, although I am a HUGH fan of the BP podcasts! I'm using the BP platform more, and just didn't realize I could vet it out there.... I'm learning more every day! Thanks much

Carin Kveton · Answer

Darrell- Thank you for mentioning that the short sale has to have wording in it. We have used that verbiage in the purchase of a couple REO properties. Our attorney for those purchases was surprised that the bank would all an "and/or assigns", but I suppose the bank didn't care who purchased the property, just as long as they got it off their books! I'm going to review my contract to see if we have that verbiage, as I am not sure we did that this time! (lesson learned-have as many exits possible...) We may, but we may not.

Darrell Shepherd · Answer

^^true if all you need is 65-75% of the cash needed for the project. Haven't done one yet where I didn't have to step in to get the project done right, though. Put additional money into all but 1 too.

Doesn't matter much to me, I make more doing them myself, but it's pretty naive to say it costs less to borrow than to JV. Kinda like saying you make more on a rehab by not buying insurance. Fine if you can afford the loss, I actually do that on the little ones, but it's not very smart if you can't afford to cover things if they go south.

Jason Hirko · Answer

I'm sure there are plenty of private/hard money lenders in your area that would take a look at the project... It would save you more money than JVing in the long run if you make a decent return.

Rick Maningas · Answer

I'm new to BP so forgive me if I don't direct you with the right actions but why not list your opportunity in the Marketplace for a joint venture partner?

Carin Kveton · Answer

Joanna- Great ideas. We also did request moving up the date for the first house , but their lender stated they needed until 30 June to close. Traditional Mortgage won't work on this house, unfortunately, as it needs a new roof and there had been some water damage in one room in the house, necessitating removal of drywall (it was caught quickly and there is no mold or mildew. But now there is exposed walls and bare flooring in that room).Yes, I think increasing my network is going to be the way to go. It DID however, occur to me, maybe I could wholesale this deal, as it is in a great area, and great price, despite the work needed. I may try that avenue, as a small amount of money is better than nothing! Thanks for the suggestions, and I appreciate your time!

How far do you go before you walk away from a deal?

How far do you go before you walk away from a deal?

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