Heading toward Disaster with this Flip, HELP!

[Lynn Hill-Torres]

Help BiggerPockets!  

I am in desperate need of some help and advice  to steer me in the right direction.  I jumped out there  and bought a house that was supposed to be a rental property but when we looked at the area, my husband and I felt to  get us some Capital to get started with the rest of our real estate ventures, which is to buy and hold. This isour first property  and I'm feeling that it's heading towards disaster and all the people that I've been speaking with are not helping  partly because their family members .  Mistake number 1!  

So here's the scenario...(this is going to be long)

 In October,  we we're looking for our first rental property to buy  in Baltimore Maryland.  We met a wholesaler who had a couple of houses that were right in the price range that we were looking for and since this was my first  buy, we had read all the books,  read a bunch on the website, listened to podcasts, I felt we were ready. So, we went to our bank and got a personal loan at nearly 11%  for $35,000 .  We were looking for a house that would be about $20,000 that would need about $10-12K in rehab costs and then rent it.  We came upon this house and got it at $24k on Patterson Park Avenue and Monument in Baltimore City. This house is 5 blocks down from Johns Hopkins Hospital  which they are buying up blocks and blocks all around  the hospital  and they're gentrifying the neighborhood. It's one of the hottest neighborhoods  that is upcoming in Baltimore right now. Even though they haven't really started doing the major renovations yet but everyone knows that something big is coming because they're buying up blocks at a time.  And the city is all behind it and have really started  making the community  beautified, planting trees and fixing the roads. To the right of me, next door, that house just went up for sale for  $35,000  and it is a complete gut job . To the left, next door, is for sale a turnkey rental for $65000.  Next to that house  is a group  of 4 townhouses  that are for pre-sale  at $250,000, by a developer in New York .  They are going high end.  One block down, in the  800 block, reno homes are  for sale  for $200k. On the 900 block, the same. These are fully rehabbed upscale high end homes. 

My intention was to do a mid-grade rehab (because we didn't have a lot of money), have my brother (who's been doing carpentry and rehab work for other investors' rentals) would do the work and my husband would help......well, we got ourselves into a little mess. Basically, the money was getting spent but the work wasn't moving as I had anticipated. We ran out of money. 

I felt that my brother was cutting corners in the work and basically band-aiding problems and not really correcting them in order to stay on our very modest and tight budget. Since we decided to go with a flip instead of renting it, the rehab changed...but our budget didn't. I quickly learned that we needed more money to do the rehab. We halted the rehab so that Thanksgiving wouldn't be weird. I was getting frustrated and my brother felt like I was micromanaging. We never did a scope of work. He didn't know what that was and it was difficult for me to tell him what to do and my mother who is realtor and has her own rental property that my brother manages, was on his side. The outcome was that I was the newbie and needed to let him do what he does. But he was all over the place. Many jobs got started but nothing was considered "done." At thanksgiving I stopped all work and now my brother has no work for the christmas holiday and it seems like its my fault because this was suppose to support him through January. I felt we had no way to determine if we were on time, on budget, or how we were progressing. 

This isn't important but since I'm venting, why not tell it all. We got into investing to help my brother. Really this is his dream. We wanted to help him get a two-unit house, move out of where he was staying and then he'd have rental income to help get himself on the road to his own properties...so we said if we did a flip, we'd pay him 25% of profits. We were hoping that even if we jumped in and out quickly, we could still make like $80K with the numbers we had. But everything changed with him. We needed to pay him every week, $500, and then he needed helpers, and the money was just going very quickly now and I couldn't see anything get DONE, started but not done. My husband complained, why now should my brother get the 25% if we are paying him now, and paying him a fare wage? What was his risk? His contribution to garner the profits? I was torn between my husband and my family and I, of course, sided with my husband. He was, after all, working to fund this whole operation....and he works outside, mind you, and today, for example, is 20 degrees out there! He wasn't too happy. 

Now that we've stopped. I'm at a lost now. I know that in a couple years that area will be HOTT! But then I really want to get my business off the ground and I think a flip would give us the capital to move ahead quickly and not have to wait a year or more before we get our next property (that's about how long I imagine it would take us to save enough money). 

Here's what I'm thinking, we found a new contractor that has done many many rehabs similar to this one in Baltimore City. He works with my other brother who is an electrician and came highly recommended. I got a good gut read from him and he taught me a lot during our walk thru. His guesstimate on the rehab was to go high end like the houses in the area and the ones next door. He said $40k for the rehab and 12 weeks. He said we needed to do a scope of work to make sure we were on the same page. He even said he'd hire my brother so that he can learn and be able to work with me in the future. But at this point, I wasn't sure about the money. My personal loan is for 6 years/10% fully amortized, so my monthly payment is $687. I was thinking about getting a hard money loan to pay off the personal loan and then add the $40k for the rehab, so a total of $75k we'd be all in. First off, I don't even know if a private lender would even do this type of loan so I'll have to just wait and see. My mom, who is a realtor, thinks that because of the low prices of the houses next door will allow us to only be able to sell ours for maybe $120-130K even if we went high-end, but she doesn't work in that area and hasn't been "actively" doing real estate for years, but she is a wealth of knowledge with 25+ years of experience.  

I'm so stressed, anxious, tired, exhausted, at a lost...I wrote this long book so that you guys can know what it is going on and will best be able to assist, guide, provide advice. 

What are your thoughts?