is this a new strategy ??

[Deniz Cengiz]

Hello BP community,

    I have an idea that may sound for some pretty idiotic / risky / not worth it etc,..  So, I would like to share with you all , hoping experienced or not,  everyone comments on this.. Open to all suggestions..

I'm newbie and want to get into RE business, married with two kids, currently live in South Jersey and planning to move to Atlanta in jan 2018..   Currently own my company and my company builds / renovates  mainly "Children's Museums, Science Centers etc,.."    if you need a giant dragon in your back yard made of fiberglass and fire coming out of her mouth or 15 ft Naoh's Ark made of all wood for your church / school , I'm the guy..  But this is not the only thing we do, we also work with interior designers for home / office / store decorations, trade show stands..    We start from scratch in manufacturing and design the project in 3D first and when customer approves the design we manufacture the unit(s).. the customer's order may be a new entertainment center / room decoration for kids etc,..

Since I have the opportunity of manufacturing wood / steel / fiberglass anything in production, at first I was thinking of entering RE business buying properties from auction sites or with the help of an investor friendly realtor that needs some renovation..  I was planning of lining up 3-4 properties at the same time for flipping and pay them all cash..  I would do part of the reno with my crew , such as hardwood floors, paint job, updating kitchen, bathroom vanities , roof and electrical issues / HVAC / siding etc,.. have to be done by vendors..  (I know I wrote 3-4 properties and how much paid for those? The new strategy not mainly related to how much I can invest, you will understand below why) 

just bear with me a little more pls , coming to my new strategy question shortly.. According to above scenario ; I have 3 or 4 properties in my portfolio and some of those already flipped / rented and waiting for Refi stage to complete BRRRR method and rest of the properties we are still working on flipping process.. With the limited capital I can reserve for RE business, I can probably buy 3-4 properties and if the market crashes just like in 2008 , I'll be in danger of losing a substantial amount with the properties I own, the only protetction I have in hand is ; I did not buy the properties in market value and my cost in general %20-25 below.

instead of following above route, what if I approached the homeowners / their realtors with my realtor that are not able sell their property because of the condition of the house and made an offer as follows ; Dear Homeowner, we see on MLS that you have not been able to sell your property "on this address" (B and B+ neighborghood) since last 150+ days for 110K .. Assuming the reason behind this, mainly the home is in rough condition and most of the customers interested in move-in ready or the properties that require cosmetic job .. So, in this current conditions , your property may be attractive for hand full buyers in the area such as flippers. Possibly, this process may take another 150+ days to sell or as it happens in many cases , you may end up lowering your sales price from 110K to 80K to sell the property.. We would like to make you an offer of fixing your home with our own investment / crew AND we would like to share %40 profit with you.. By signing our contract you will be giving us full authority to reno your house and admitting the fact , you can not sell the property to a third party w/o our approval and we will have first position lien on property for reno cost. The property basically will be owned by our mutual LLC.

Here is the plan ;  (All numbers are assumptions)

ARV $250K

Target Sales price after Reno $240K.

Reno Timeline 3 months.

Reno budget $55K  (if unfourseen issues come across during reno, such as foundation etc,.. The cost will be added on top of 55K)

Sales period 3 months and if my realtor not able to sell this house in 3 months lets say by july 1st , I will buy the property @ 80K all cash / 2 weeks closing and if I dont have the finance ready to pay 80K , I walk away with a loss of whatever I invested in reno.

If property sold as planned at 240K, assuming realtor fees and closing costs @ 15K total , balance ; 240K - 15K = 225K

Profit sharing ; 

Homeowner gets 110K and plus ;  240K sales price - 15K realtor and closing costs - 110K original sales price - 55K reno cost ( ! ) = 60K x %40 = 24K

Homeowner's advantage :  instead of selling the property @ 110K , sold at 110K + 24K = 134K and before this deal , he/she did not know if it would take another 150+ days or if he/she would end up lowering price to 80K but by signing the contract that my lawyer prepared, he knew in the first day it would sell in 3 months reno + 3 months sales period = 6 months or maybe even less for sure or if I can not pay 80K after 6 months , he/she owns fully renovated property that has higher value now / much easier to sell and homeowner's only investment was 6 months.

My advantage ; Definitely, there will be some profit made in my contractor role here , assuming around 15K.. My total earning will be ; 60K total profit - 24K homeowner's share = 36K + 15K contractor role = 51K total profit.. The method of sharing %40 of profit with the homeowner will allow me to use my finance in better way ( instead of investing 175K for one SFH and earn 60K , I will be investing 40k ( 55K - 15K = 40K ) and earn 51K ... if one day the market crashes , I have an option of losing less ( if the value of the house went down let's say to 120K after reno , then my initial plan of buying the house all cash @110K and investing another 55K , cost of the property 165K and my loss wouldl be 165K-120k = 45K ) what is my position in this deal ? investor / contractor / developer ?

Side notes : My company " X " will do all architectural exterior / interior designing in 3D and apply, period.. The homeowner may pass comments during designing but once we agree on design part,  my company will be select the materials / reno decisions.  if property not sold in first 30 days , then I have right to lower the price but in any case, the owner gets in his/her pocket min 110K in the sales.

have a wonderful Sunday :))

Deniz C.