Flipping Newbie -Investor/Partner deal... Is this a good deal for me?

Question

Okay guys I have never done a rehab a wholesale, or anything of the sort.  Fortunately my father owns rental properties - both commercial and residential, my sister is a real estate agent, and I have been studying the art of wholesaleing, flipping, and general real estate for months now so I do understand the generalities of it.

My question is this:

I posted an ad on craigslist looking for a mentor/ investor.  Someone who would invest with me (using the decent stack of cash I do have) and teach me, in exchange for a percent of my profits.

Today, immediately the morning after posting the ad I received a phone call from a man that owns a wholesale, rehab, and brokerage in my hometown. (one of those 1-800-webuyhouses things)

Being as I am a Marine he seemed fond of working with me since he was an Army vet.  or maybe he just wants to make money... anyways.

He wants 5k cash up front and 5.5% listing fee. He told me to get approved through a hard money lender (RED DIRT LENDING) which I've already done.  They want 14.5% 4 points, 6 months only, and I need to register a business name. I am now already approved with them.

In return for my 5k cash and 5.5% listing fee, he apparently will let me rehab the homes he finds (which according to him have solid profit margins after repairs).  I am waiting for a phone call from him tomorrow in which I will either get a property with 50k+ profits or his other 80k+ profits.

So basically I am paying him 5k cash and the 5.5 percent to find the home, let me buy and rehab, then he markets it online.  Is this a good deal or is he just generally attempting to make big profits off of me.

Please, I need your opinions.  This is my first flip in houses, I don't want to lose and I want to make the right moves.  On the first two cars I ever bought and sold I lost 15k cash, after that I have a 41% ROI but I would like to not make the mistakes I made with cars, on houses.

-Chad

Tina Husted · Answer

Chad, I am so new to this myself but I have A LOT of common sense.  To me.........this does not feel right!!! I prefer NO brokers.  No offense but they're like lawyers will be happy to cut in to anyones deals.  Just like Jay C said you need common sense as well.  If I were in your shoes I would bail out of working with him. But , thats just me!! You can get deals you have to work for it and look.  I know this is what "I" have to do!  Don't lose your money!

Luke W. · Answer

Chad,

18002sellhomes is a large wholesaling company here in OKC and probably Tulsa. While Leo has had troubles in the past, the company seems to be fairly reputable as of late (although they low ball, but then again what wholesaler doesn't?). They also seem to be really successful.

Although I have never used red dirt personally, I know multiple investors who have used them, and they have expressed good things about the company. They move fast, estimate their own repairs (they definitely don't want you to get into a bad deal), and are pretty helpful throughout the process.

Nate Garrett · Answer

Gotcha. A few more things I will add:

- If someone says "I guarantee I will make you money" when it comes to real estate, I would run, not walk away.

- After doing a substantial number of rehab and resale projects in and around Tulsa, I can tell you it's a tough business and I realized an average profit margin of around 8-10% of sales price. I should add that I did work with a general contractor so my margins were reduced accordingly.

- Best of luck. Tulsa's a great town for real estate.

Chad Johnson · Answer

Believe me, that's the first article I read before I asked the guys name and was researching the company.

Chad Johnson · Answer

it's a different guy named I believe..Ralph goodman I'm not at home right now so I would have to check my notes. He's owns the eastern oklahoma franchise of 1800 2 sell homes

Nate Garrett · Answer

Chad,

Make sure you do your research on any company (and its owners) before you do business with them, just as diligently as you would research a property that you're interested in. You might find the following article informative:

http://newsok.com/kingston-receives-eight-years-told-to-pay-406171/article/2340045

Chad Johnson · Answer

Jay, both of your posts on here have been comin sense things. Things that don't need to be said. I thank you for trying to help but if you'd like to give input, actually transfer me some form of knowledge or information.

Jay C. · Answer

Chad, You wrote

"In the end, I've got books, a cell phone, and a laptop with internet... Everything I need to make money"

Dont forget your common sense. If it doesnt feel right dont force it. In the end only one person in your equation is going to get hurt financially and its not them. Remember that.

Chad Johnson · Answer

I'm not speaking with the guy until tomorrow so I'll bombard him with the questions then.  Overall it sounds like I need some feedback from the mls system on him as well as the structural details of what exactly he is talking about.

In the end, I've got books, a cell phone, and a laptop with internet... Everything I need to make money. Now that I know that I have the ability to access funds, within a very short time frame I will find a way to complete my first flip and I will not lose on it.

I will let you all know what he says tomorrow. If it doesn't work out well with him, or the numbers don't make sense, then I guess I'll hit craigslist hard with lowball offers left and right tomorrow and get this ball rolling.

James Gefke · Answer

Hi Chad,

Have a couple of questions regarding your post.

1. Is this 5k, 5.5% commission for each deal you do?

2. What is he providing with you during the rehab?

3. How is he getting deals with those margins?

If I were you I would like to talk with people who he has provided this service in the past and what their results were.

I would also like to see actual deals and numbers to verify he can produce the results he is presenting you with.

I'm trying to figure out what exactly you are paying for.

I am not sure of what your resources are but it sounds like you may have family that could possibly provide you with some very good insight.  I would start there.

Most importantly, you really need to study and know your market.  A hard money lender will want to qualify people they lend to but whether or not the deal makes sense will likely determine the likelihood of a deal getting funded.

FWIW, I would be very cautious allowing someone I just met to value a deal that I am using my money/credit. Especially when they get paid upfront:)

Good luck!

Flipping Newbie -Investor/Partner deal... Is this a good deal for me?

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