How To Build a Team For This Deal? -Alabama & Georgia

Question

I have heard every good deal gets funded. I think I have identified a solid, rehab & flip, in my local neighborhood community. It is a foreclosure listed for 80k, with an ARV of easily 125K+ , I am still working the Comps. but similar homes have sold for 160k in the same neighborhood in the last year. Minor cosmetic repairs are needed, floors and paint, and maybe some new appliances, all together off hand maybe 10K in rehab. It is sitting in the best school district, and is “newer” construction being built in the early 2000’s.

My question is how do I find a partner to tackle this rehab with!? In all honesty this is something I would do on my own but I am a Service Member, who just bought their first house and is newly married. I HAVE TIME, but I only have about 5k cash to play with right now which obviously isn’t enough. I can put “skin in the game” but am struggling to find a partner. My town is inactive, and there are no REI meetings locally. I am waving the flag looking for some help, guidance, or just plain advice.

If I cannot find someone to work with I might beg borrow or steal some money from family and sell my soul to the devil and work with a HML.

J Scott · Answer

ARV of $125-160K is way too large of a range.  You need to narrow that down.  And if it's listed on the MLS, it's almost certainly not at the higher end of that range (if it is, the deal is already gone or your rehab numbers are off).

Rehab of $10K sounds low (for any retail rehab).  Have you seen the property?  Or are you just basing your estimate off pictures and MLS description?  If you haven't seen the property, you need to see it before you can determine the rehab costs.  If the house is less than 10 years old and is selling for significantly below ARV with seemingly minimal needed repairs, my guess is that there is something big going on -- perhaps structural issue, termite damage or boundary issue.

Now, if the ARV is closer to $125K, that's an average deal, and there may not be enough "meat on the bone" for a money partner to want to split.

My recommendation would be to narrow down the ARV and solidify the rehab estimate.  If it's still a good deal based on those numbers, post it in the Marketplace here (with the verified details) and network at your local REIA.  You should be able to find a partner, or at very least be able to wholesale it.

Jon Holdman · Answer

If those numbers are accurate, and you find a HML who will lend you 70% of ARV, the loan amount would $87,500.  When you buy, you will have some closing costs (est $1600) and loan points ($3500).  HMLs will typically hold back all or most of the rehab budget.  Total needed is purchase price, closing costs, points, and rehab budget for a total of $95,100.  Subtract the loan of $87,500 and you need to bring $7600.

As you hold, you'll make monthly payments of $1093.75.  For six months that totals $6,562.50.  That brings your total cash investment to $14,162.50.

You will also need some additional cash to pay for labor and materials and then the HML will reimburse you after the work is done and inspected.  Some HMLs will give you part of the rehab money up front.  But you should still plan on some cash or credit of your own to front the costs for labor and materials.  If you go over your rehab budget, that's entirely out of your pocket.

When you sell you'll have selling commissions (6% or $7500) and closing costs (estimate those at 2% or $2500.)  So you will net $115K from a selling price of $125K.  You have to pay off the loan and return the cash you've invested.  That leaves a profit, pre-tax, of $13,337.50 for this deal.

Stephen Collins · Answer

@J  Scott and @Jon Holdman for whatever reason you were not tagged in my above post.  ^^^

Thanks again everyone.

Stephen Collins · Answer

@J  Scott I agree that the numbers I provided had too large of a range, and the best thing I can do in the short term is hammer down the Big 3: target purchase price, accurate rehab cost, and true CMA/AVR. I have contacted a trusted realtor to work on determining the purchase price & AVR. After I will walk through with a GC to do the rehab costs.

I have seen the property, inside and out. It is about 10 minutes down the road from the house I purchased and live in. I am basing the price tag of the rehab, off things I have purchased for my home. I also agree if it sounds too good to be true, then it probably is. There is little to no disclosure, so maybe there is a big surprise. However  the real estate “climate” here is a night and day difference than let’s say Atlanta; there are less opportunities and less investors, but maybe this is one of those few good deals.

@Jon Holdman I have looked through the HML’s list here on BP, have you worked with any in the past you recommend? I am not sure I understand your rule of thumb? I plugged in “my” general numbers just for an example. If the HML will give me 70% of the $125k AVR then I get from $87.5k. I then should be able to come up with 15% of the AVR to finish the rehab.  Did I get that correct?

I have also thought about another Course of Action to do this independently. Rent my current house out, and self manage it to cover my mortgage+escrow+capex ect. AND then use some type of FHA 3.5% down to purchase the "rehab house" and live in it. I can then use my military BAH to cover the mortgage+escrow and some of the repairs. I'll fix the things I can and use the cash I have saved up to finish the rest over the next year or so. Then sell it, and move back to my primary residence. Hopefully this will generate some seed money for another project and be another learning experience.

All three of you have had great advice, about how to move forward. I think I have enough tasks at hand to stay busy, who knows keep an eye out for me in the marketplace maybe this will be an opportunity!

Jon Holdman · Answer

Some HML will go to 70% of ARV without any minimum down requirements.  Some have a minimum down percentage.

My rule of thumb is that if the HML will lend you 70% of ARV and purchase plus rehab is 70% then you need 15% of ARV in other cash to finish the deal.  If the HML has a minimum down requirement, that will increase the cash you need.  Also be aware that most HMLs will hold some or all of the rehab money in escrow and only hand it over after the work is done.  Sometimes in two or three draws for a larger rehab budget.

Like @J  Scott says, step one is to really firm up your numbers.  You need accurate estimates of both ARV and the rehab estimate.  These are both really hard numbers to come up with, especially when your new.  But its essential they are accurate if you want to actually make money.

Stephen Collins · Answer

@Jon Holdman I have read many of your posts, thank you for all the advice. First let me say I am sorry for breaking the rules, I am not so much looking for someone to step forward to work with, as I am about a general strategy about how to meet the right people. To address some of your points:

I have prepared and rehearsed my "elevator speech" over and over. I talk with everyone I can.

What do you think of the Credit Card Cash advance? Skimming through my junk mail that might be an option. Just to make sure I understand, I would used the 10-15k Cash Advance, 5k personal cash, and the remaining 80% from a HML?

Other than that I only see borrowing money from family as a viable option.

Jon Holdman · Answer

Sorry, but no deal making in this forum.  That can only be done in the Marketplace.

Sounds like you need a money partner who can fund essentially 100% of this.  A hard money lender won't get you there, but you might get enough to find someone else to lend you an additional $10-15K.  Add in your $5K and you should have enough to complete this deal.

You ask how to find such a partner.  Talk to everyone you know and everyone you meet about what you do.  A few will be interested.  A few of those will have money.  A few of those will be willing to invest in you.  Now you've found a true private lender.

For a fairly small amount like that (assuming you use a HML) you may have other alternatives:

• second job
• credit card and credit card cash advances (not much more expensive than hard money)
• personal loan from a bank or credit union
• loan from friends or family
• sell something
• crowd lending such as prosper.com

How To Build a Team For This Deal? -Alabama & Georgia

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