Need advice on a deal

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Need advice on a deal

Randi Shannon
New to Real Estate 路 Moody, AL 路 Member since 2019 路 5 posts 路 5 votes

Hi! I'm Randi! I am VERY new to all this. Really still in the learning stage. I received a large inheritance around a year ago and I've been brainstorming ways to make it grow, mainly in real estate. I reached out to a guy I know on my Facebook who flips houses, claims to own a construction company, in hopes of gaining some knowledge. He suggested going in on a JV agreement. He seems to be very fixated on this one house that he's already purchased that needs beams/piers? Floor is slanted downward in a room and wants me to buy from him. At first the deal would be I purchase the house for 35k and then he put in 30k in repairs and then we're resell it for 90-100k. First I assume he would already make a profit from me buying the house from him. I told him I was on the fence and needed to gain some more knowledge before I drop 35k on something. He keeps saying im doing too much research and not enough action. He introduced me to his attorney and while speaking with him, the deal was then somehow changed to where I loan 65k. 馃 and then get interest on the loan and split the profits. He offered a legal personal guarantee. So I Google him.. see if has property taxes.. try find some info, see if he even has 65k in personal assets to make this feel less sketchy. But I really can't find any info on him. Can't find his business on Google although he took me to a jobsite for another flip he's doing, and he is obviously is renting his house. I'm just trying to figure out how to make this a secure deal where I don't get screwed. Or how is he trying to screw me? Im not one to just jump into stuff. I would prefer to learn the rules of the game before I play. I would think i would need to see his track record with previous loans. I haven't seen any paperwork or any numbers, other than what I've been told from the numbers above. I just need some advice.. I have no idea what I'm doing but I'm researching like crazy trying to learn. He keeps texting and I keep leaving him hanging lol. I feel like he does have valuable information and I would like someone to mentor me through a flip, but want to know I can trust their actions.

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Scott JensenPro Member
Financial Advisor 路 Blaine, MN 路 Member since 2014 路 477 posts 路 387 votes
6y

Have you been to any local REI events? It seems like right now you needed a mentor more than a partner. My gut feeling is to stay away from that guy...

Also, read the millionaire real estate investor by Gary Keller. He does a great job in that book.

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  • Hai Loc
    Specialist 路 Toronto, Ontario 路 Member since 2012 路 2k+ posts 路 891 votes
    6y

    Sounds fishy

    I would stay away guy has no track record and changed his whole story to a loan that is way more than construction with personal guarantee wow.

    If I am lending any money I want security and the only security is the property but you don't even know if its worth $35k..

    I absolutely hate these phony people trying to take advantage of newbies.

    2Reply
  • Jan Kerr
    REI Mentor 路 Perry, UT 路 Member since 2019 路 101 posts 路 123 votes
    6y

    @Randi Shannon Randy, you were smart to do your research and take it slow rather than letting his timing pressure you into taking action. When people hear that you have come into money some of them will start sceeming on how to get you to share it with them. I would start by getting your own comps on the house from your choice of a local agent or a dis-interested third party so you know ther numbers have not been manipulated. If you don't have an agent or don't know how to get that done, let me know and I'll walk you through it. Get comps for its "As Is Value" and then again for its "After Repair Value". Then if you are satisfied that the After Repair Value is high enough, then get your own Home Inspection done from a licensed Home Inspector. that is not the city building inspector, but a professional home inspector. It should cost you about $150-200.  You decide which inspector to use. Do not let the investor or his attorney recommend anyone to you. Once you have an inspection and we know what needs to be done to the house, we can put some numbers into it and tell you for sure whether there is a good deal there or not. Good luck and let us know how it goes! Please chack out my profile. I would be happy to connect with you!

    1Reply
  • Randi Shannon
    OP
    New to Real Estate 路 Moody, AL 路 Member since 2019 路 5 posts 路 5 votes
    6y
    Originally posted by @Jan Kerr:

    @Randi Shannon Randy, you were smart to do your research and take it slow rather than letting his timing pressure you into taking action. When people hear that you have come into money some of them will start sceeming on how to get you to share it with them. I would start by getting your own comps on the house from your choice of a local agent or a dis-interested third party so you know ther numbers have not been manipulated. If you don't have an agent or don't know how to get that done, let me know and I'll walk you through it. Get comps for its "As Is Value" and then again for its "After Repair Value". Then if you are satisfied that the After Repair Value is high enough, then get your own Home Inspection done from a licensed Home Inspector. that is not the city building inspector, but a professional home inspector. It should cost you about $150-200.  You decide which inspector to use. Do not let the investor or his attorney recommend anyone to you. Once you have an inspection and we know what needs to be done to the house, we can put some numbers into it and tell you for sure whether there is a good deal there or not. Good luck and let us know how it goes! Please chack out my profile. I would be happy to connect with you!

    Thank you! I do have a real estate agent that is also a long time trusted family friend. I have used her to purchase and sell my first house and then used her go purchase my second house. What is strange is she pulled up the comps and they were almost 50k more than what he told me... so either his construction company is going to do a really awful job on the repairs lol or he's somehow (I'm not sure how) trying to scam on that end too. I don't have an attorney, financial advisor or cpa. He was trying to pressure me saying that they could start the Reno next week and if I didn't want to join him then he was going to do the flip without me. I told him I wanted to build my team and start my llc before I make any moves, told him to not let me hold him up and that I'm ok with missing out on some opportunities. Im not in desperate need to make a profit asap. But he's still pushing for me to go in with him, and changed the deal to where he puts zero money in. I don't know if that is normal. Something just doesn't feel right. I will definitely request a home inspection! I have a feeling he won't be up for that. I need to be asking him a lot more questions lol but I don't really feel like it because I already feel like he's trying to scam me. 

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  • Randi Shannon
    OP
    New to Real Estate 路 Moody, AL 路 Member since 2019 路 5 posts 路 5 votes
    6y
    Originally posted by @Hai Loc:

    Sounds fishy

    I would stay away guy has no track record and changed his whole story to a loan that is way more than construction with personal guarantee wow.

    If I am lending any money I want security and the only security is the property but you don't even know if its worth $35k..

    I absolutely hate these phony people trying to take advantage of newbies.

    Thank you for your response! So will you only lend for the amount of the house before repairs? And not for the amount of the repairs also? I understand the logic in that. Really I should just talk to him... but I keep avoiding important questions because I am going to end up getting rude and calling him out on trying to undermine my intelligence haha and im trying not to burn a bridge. It was my understanding that in a jv agreement someone puts up the capital and the other person puts in the work. But I thought that meant I would cover the cost of the house and he would cover the cost of repairs. But maybe I'm misunderstanding how that works and i would also cover the cost if repairs? Should i request an appraisal or just pass altogether? 

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  • Jan Kerr
    REI Mentor 路 Perry, UT 路 Member since 2019 路 101 posts 路 123 votes
    6y

    @Randi Shannon In a JV Agreement, you can put in any terms you want. The JV Agreement should define each of your roles and responsibilities in the deal in detail. Who is doing what and any other contributions whether they are financial or physical or managerial. There should be specific remedies spelled out if either party fails to live up to their responsibilities and obligations under this arrangement. It should also define your compensation.

    I would like to know if the comps were done on both the as is value and the after  repair value separately.

     What will the rehab entail and what level of quality will be used in the materials and workmanship? If you do this deal, make sure to have an inspection done and itemize the repair costs and budget, breaking down the materials and labor separately for your protection. Insist on 3 competitive bids for the work and use a really thorough contractor agreement with every contractor who does any work , They should be licensed and insured. Make sure any work that requires a permit has a permit. 

     

    2Reply
  • Scott JensenPro Member
    Financial Advisor 路 Blaine, MN 路 Member since 2014 路 477 posts 路 387 votes
    6y

    Have you been to any local REI events? It seems like right now you needed a mentor more than a partner. My gut feeling is to stay away from that guy...

    Also, read the millionaire real estate investor by Gary Keller. He does a great job in that book.

    3Reply
  • Randi Shannon
    OP
    New to Real Estate 路 Moody, AL 路 Member since 2019 路 5 posts 路 5 votes
    6y

    @Scott Jensen I just found out about local REI events the other day! Im am definitely planning on attending some. Hopefully I can find a more trustworthy mentor at one. Last night I was apparently dreaming of how to tell this guy I didn't want to do the deal with him hahaha because I woke up with a reply on my mind. So I went ahead and told him I didn't feel it would be wise for me to go into the deal with him, but that I appreciated his guidance. Thank you for the book recommendation! I went ahead and purchased it on Ebay.

    1Reply
  • Tanya Krolicki
    Member since 2019 路 2 posts 路 5 votes
    6y

    I agree with what everyone is contributing. When ever someone gets pushy with a deal or "acts odd", run! I recommend doing research on all aspects of remodeling/repairs...I've caught licensed/insured  "recommended" contractors doing short cuts or flat out not the right way. For me the research has helped with my confidence on DIY projects as well as envision ideas for a property/how to ask a contractor about tasks. Good luck in your adventure! 

    2Reply
  • Dennis M.
    Rental Property Investor 路 Erie, PA 路 Member since 2018 路 6k+ posts 路 9k+ votes
    6y

    i would be very skeptical about this arrangement! Your about to lose some big money if your dumb enough to fall for this . When the attorney flipped the script and wanted 65k now ..that鈥檚 when I鈥檇 be done

    2Reply
  • Lori Greene
    Specialist 路 Huntsville, UT 路 Member since 2015 路 458 posts 路 249 votes
    6y

    Randi, I read through the whole thread and I'm happy to see you decided to pass with this guy. The only way I would even consider this deal is to purchase it outright from him before the renovation and only if the numbers work out great for me, if he was willing to sell it to me for smaller profit now rather than flip it himself.

    That way, I wouldn't have to worry at all about his shadiness because I did all of my own due diligence (inspection, county level research, property value and numbers analysis, etc.) and I'd be doing the whole flip on my own, with my own contractors, funding etc.

    But since you kept repeating, scam, scam, scam in your posts, it's a relief that you followed your own instincts. I would have passed on it for sure, especially because of his pressure and changing terms.

    Your best weapons will be to not tell people you came into some money (but just that you are an interested investor) and to learn how to do your own deep due diligence on every property you are considering so you will never have to take anyone's word for it.

    I personally feel that partnering with mentors is not the best way to go because it can be a conflict of interest. Stay away from mentors who are offering to teach you, while asking you to fund their deals. It's best to keep those 2 worlds separate. Partner with other investors, yes (not as an "apprentice" or with them as your mentor) and learn from them as you go. But if you feel like you need a mentor to educate you, which can be a great asset, then find a good and affordable one to hire but don't partner with them.

    1Reply
  • Randi Shannon
    OP
    New to Real Estate 路 Moody, AL 路 Member since 2019 路 5 posts 路 5 votes
    6y

    @Lori Greene he finally responded to me not wanting to do the deal with him which makes even less sense the the rest of the deal has. Why would he dip all this work for zero profit? That makes absolutely no sense to me:

    Sorry I was slammed this weekend and didn't get to respond to your text. That's fine. I told you when we spoke before that there wasn't any hard feelings if you decided not to. I was just trying to make it a great deal for your first flip so you could learn the things you needed to and not get screwed over by anyone on the first deal. Based on what you told me, I know you were concerned that I was somehow trying to screw you over, and was listening to other peoples opinion. I didn't tell you everything I had planned because I wanted to see how committed you really were to getting started. I had planned on doing the full remodel on that property for $20k(the companies cost for doing the Reno with no profit) for our venture and then forfeiting all of my profits on the back end and allowing you to make 100% of the profits once the property sold. You never just hand someone an opportunity

    though, you always structure it to see if they're willing to work for it or if they just want a guaranteed win handed to them. I'll make myself available to try and help you some as you go on this journey alone. Feel free to shoot me a text or email if you need anything and I'll do my best to try and point you in the right direction.

    2Reply
  • Lori Greene
    Specialist 路 Huntsville, UT 路 Member since 2015 路 458 posts 路 249 votes
    6y
    Originally posted by @Randi Shannon:

    @Lori Greene he finally responded to me not wanting to do the deal with him which makes even less sense the the rest of the deal has. Why would he dip all this work for zero profit? That makes absolutely no sense to me:

    Sorry I was slammed this weekend and didn't get to respond to your text. That's fine. I told you when we spoke before that there wasn't any hard feelings if you decided not to. I was just trying to make it a great deal for your first flip so you could learn the things you needed to and not get screwed over by anyone on the first deal. Based on what you told me, I know you were concerned that I was somehow trying to screw you over, and was listening to other peoples opinion. I didn't tell you everything I had planned because I wanted to see how committed you really were to getting started. I had planned on doing the full remodel on that property for $20k(the companies cost for doing the Reno with no profit) for our venture and then forfeiting all of my profits on the back end and allowing you to make 100% of the profits once the property sold. You never just hand someone an opportunity

    though, you always structure it to see if they're willing to work for it or if they just want a guaranteed win handed to them. I'll make myself available to try and help you some as you go on this journey alone. Feel free to shoot me a text or email if you need anything and I'll do my best to try and point you in the right direction.

    Hmmm. That's an interesting response from him. But it sounds like you have good instincts to stay away from him. Let me know if you have questions about any other opportunities or properties you're looking at. Happy to help.

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