Driving for dollars works! Now in desperate need to get creative!

[Allan Rosso]

So I'll be the first to admit, I wasn't very optimistic about driving for dollars actually working. However, my partner and I are committed to making our REI business work, so we gave it a shot. One driving for dollars session later, and we stumbled upon a small off the market portfolio that has potential to snowball our business and really get us going!

We made a list of vacant, pre-foreclosures (had Zillow open as we drove), and for sale by owner homes. Once back in the office, we pulled any information possible prior to cold calling and went to work. A quick inquiry into the county website showed that the owner of one of the for sale by owner homes also owned 4 duplexes, and better yet, he had owned them for almost 20 years: "potential for a portfolio full of equity" jumped out at us!

We gave the phone number that had been listed on the for sale by owner sign a call. It turns out, the owner of these properties recently passed away, and his 5 children were trying to sell everything and not have to deal with it: extremely motivated sellers!

Now this is where we need to get creative; we want to flip the house (needs about $15k-$20k worth of work), wholesale 2 duplexes (these are in a part of town we had agreed we would try to stay away from as far as rentals), and hold on to the other 2 duplexes (all 4 have tenants).

I think it's safe to assume the two wholesale duplexes would be a different contract and transaction from the rest of the portfolio right? 

As far as the flip and two rentals, we would like to get a bridge loan that would allow us to finance the repairs (we are preapproved for a $150k interest only loan, so we'd have to go back and talk to our banker about this transaction and see if he'll work with us), then once the house is sold, use the profit to cover any expenses that come up when refinancing the duplexes into mortgages. 

What other options as far as bridge loans do we have for our particular situation? What about portfolio lenders?

Over the phone, the owner kept saying "the bottom line would be $85k a piece". We ran quick numbers and quick comparables after the phone call, and came up with $61/sq.ft for the house, which would mean selling it at around $110k (ARV). Considering the $15k-$20k needed in repairs for the house, we would have a max offer of $65k on the house. The duplexes, at $50/sq.ft., would be worth roughly $97k.

We're thinking of spreading out the $20k we need to drop across the three properties, so in their eyes we're only dropping about $7k per property (if we gave them full asking price for the duplexes of course), rather than trying to get them to drop one property by $20k. Should work right? 

We feel that there's a lot to consider, and a few different ways of making this work, we just don't know what kinds of questions to ask on here in order to come up with a feasible gameplan to FINANCE THIS WHOLE THING (our main concern).

Anyone with experience and advice, please advise us! Keep in mind, we've never wholesaled before, and we've never done any sort of portfolio transaction. Thank you!

[James C.]

Allan,

Ok.. there are several options on this. The sellers are looking to get $425K total. I would put each one under contract separately, and make the contracts assignable. In this way, you could wholesale out the ones you don't want and finance the ones you do. If you had to close on them all, then you could via your bridge or HML/portfolio lender. You could hold each one in it's own LLC, or all in one... it just gives you many more options.

You are probably looking at a commercial loan, unless your banker can get creative on the deal and close 5 individual loans at once. It's possible (but not probable), and you'd need a good banker to make it go. Commercial, although more expensive, would be a bit easier. HML would be the most expensive, but you have loads of flexibility. To save a bunch of money, you could write a separate loan deals for the fix-rehab-flip and the buy holds. Finance the fix-rehab-flip with the HML, the other with a regular bank.

I would also say to offer what they are worth individually, and then budge if you have to. So, if the SFR is only worth 65K, then that is all it's worth. Keep your money makers from financing your losers. Obviously, if your property is worth more than 85K, give them just 85K.

One of three things will happen: 1) you will get your price, 2) you will get the ones that are priced right or 3) you have to budge. If 2 of the 3 options are financially better, start with those. Make sure you show them why the SFR is only worth 65K, and be crystal clear about it.

If they need to have 85K, tell them you are willing to help them get there, but you need their help to do so. That help can in the form of owner financing on the portfolio, or lease/option, seller second for 20% to get the HML/Portfolio lender to go, or other support that helps you make the deal. Let them know that you want the properties, but you need some incentive/help to pay more than they are worth as-is on the open market.

Make sure your ARV's are SOLID, not just some PSF calculation. Really dig in and do it like an appraiser would. It will save your bacon every single time.

Hope that helps!

Good luck,

Jim