I am pretty sure this is a good deal. Thoughts? Split?

Question

Hello,

I have been on here for a while but as a Buy-n-Hold guy. What I think is a great opportunity for a Flip just came up. I do work for a Professional Flipper/Wholesaler (cabinets and counter tops for him) and he is willing to wholesale one to me at what seems to be a great deal

Detail are; house is about 15 year old foreclosed ranch that he just picked up from USDA. It is assessed at about 160K on the tax rolls. He will sell for about 80K (meaning he got for about 70K - he usually makes about 10K per house wholesaling). He is also willing to finance the 80K for 6 months at 6% Interest Only with a balloon.

The house (according to him) needs about 15K materials and labor would be 10-15K if all hired. So say all in for 105K. Even though I have great credit and assets, I am trying to sell my primary home right now so so not want to do a HELOC for fix up funds. I DO have a couple of friends/investors who are willing to put up funds needed for fixing and holding until sold for a cut of profit.

I think we could easily sell this home for 150 - 155 after rehab. It looks to me like even after holding cost of say 1K per month, with me running the job and an investor putting up funds, that there should be about 30K in profit. Even if I am off a bit, and say there is 25K profit, and it was split 50-50, that would be a 50% return to the investor and about 12K to me for my work.

This seems like a good deal for me. WHAT AM I MISSING?

Thanks, Dan Dietz

Brant Richardson · Answer

You need real comps, not the tax roll assessment.

You also need to go in and make your own determination of rehab needs.

If the numbers are correct then go for it.

Will Barnard · Answer

If you are in at $105k with purchase plus rehab and get $150k on exit, you have a decent deal.

Now, as for profit split, getting the wholesaler to carry the purchase at 6% is fantastic! but no need to split the profits 50% with another party who only brings the rehab money. You found the deal, will manage the deal, and found the funding for the purchase, so you have brought much more to the table than just 50%. Don't cut yourself short,it is not greed but fair business.

I recommend that you pay the investor bringing the rehab money a 10-12% return and secure their funds with a second lien (deed of trust) and promissory note. If you have more questions on this, feel free to ask.

Will Barnard · Answer

Fair enough, but regardless of close relationship and plans for going forward in future, unless your partner brings more to this specific one deal, you are giving away too much at 50%. It would be a different story if on deal two your partner brought both acquisition and rehab funds, then 50% would be fair. This is just my opinion and what I believe, but that opinion does come from many years experience doing these deals and forming these types of partnerships.

Daniel Dietz · Answer

Thanks for all the input so far.

As to some of the questions; 1) I live in the same area now, and do feel confident on the sale price range 2) The seller and I are going to go over his numbers from almost identical houses in the same area in the next few days - I will also verify these with the subs I would be using to make sure of things. 3) I did include all utilities, dumpster, interest etc... in the holding cost - that is one area that I goofed up on the rehab of a rental while we were getting it ready - you tend to remember those things :)

As to why would he want to sell so cheaply..... He is getting to be almost 70, and has had health issues so it looking to do more of the wholesale thing. He is getting to the point where he does not even want to manage the jobs all the way through even though there is more profit to be had. I think he would be happy doing 6-10 of these a year on the wholesale basis. Him and I have a long history of working together, a high level of trust, etc.... He also borrows the funds that he 're-loans' for only 2-3% from family members that are thrilled to get more than .5%on their CDs, so he is making some there too. I think part of his thought is if he could get a couple of guys like me to 'do the work and bring the fix up money', he could keep finding these for years and making money into his old age so to speak.

@Will Barnard or others.... on the split - I hear what you are saying. The back story on the potential lender/partner of the fix up money is that we go back a long way too. We are looking at this as more of a partnership that lender/borrower relationship (not sure if that is the right thing to do). He has much more capital available than I do. I am local here (he is not) and I manage jobs for a living (kitchen and bath remodeling) so we each have our strength. One thing I did NOT mention is that if this deal (or future ones) went bad, I would not be on the hook for the fix it money. We were thinking of a 50-50 split of 'any and all' profits. Meaning if we only make $1000 he gets $500 return on his funds and I get $500 for my time. If we have a loss, we each pitch in 50% of it. Does that make any sense? I do have other potential lenders who would be interested in doing more of a loan type of thing at say 10% , but I would feel more comfortable pursuing that with more of a track record.

Thanks again all,

Dan Dietz

Jeremy Hale · Answer

Maybe I'm just a skeptic. Why would someone who flips and wholesales want to pass along a 70k house that has an ARV of 150k for just a 10k profit if they flip houses themselves?

Andrew Syrios · Answer

If you're confident it can sell for between $150-155,000, it should be a good deal.

Ramon Jenkins · Answer

$150,000 minus agent fees / closing cost / seller concessions ( .10 ) equals $15,000

$150,000  minus $15,000 minus $105,000 equals $30,000

Hopefully you included: water, electric, gas, Midwest snow removal, and misc

( Maybe include a percentage for unknowns )

Otherwise without seeing pics: it might be worth digging more into this property.

I am pretty sure this is a good deal. Thoughts? Split?

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