Long Distance Rehab & Flip

Rehabbing & House Flipping
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Long Distance Rehab & Flip

Clifford Adikuono
Highland, CA · Member since 2018 · 10 posts · 3 votes

Hi. I plan to meet a general contractor (GC) for a few days in Georgia. The GC, recommended to me by a trustworthy source, does rehabs and flips of single family residences (SFRs) on a regular basis. He's made some handsome profits off of these rehabs and flips. He'd like to meet me so he feels comfortable doing business with me and I'd like to meet him so he can show me what he does with the rehabs and flips and how he does them. I plan to buy a fixer-upper SFR with a conventional mortgage and a 20% down payment (DP). An FHA loan does not seem like an option as this SFR would be pretty run-down. I also plan to open up a line of credit (LOC) so the GC can draw money from it in order to pay for his rehab crew and materials and I can see how the LOC is being used for transparency and accountability. Then, he plans to find the SFR, provide the rehab crew, manage the rehab, and sell the SFR. Once the SFR is sold, then the sales proceeds would be used to pay off the closing costs, the selling costs, the mortgage, the DP, the outstanding balance of the LOC and all other costs. Then the remaining sales proceeds would be split 50/50 between me and him.

So if someone could please help answer some of my questions, I'd really appreciate your input. So thank you in advance. 

1. In the few days that I have with him, what questions should I ask him?

2. When he shows me his current rehab project, what should I watch for and what should I note down? 

3. How could I prove myself to be the right business partner for him?

4. If we decide to do business together, how should we formalize the partnership? 

5. Do you have any other tips/suggestions?

I myself am new to real estate investing so this would be my first real estate investing experience. I originally wanted a GC who could help rehab and rent an SFR from afar. However, he recommended that I do a rehab and flip since the area he specializes in is best for a rehab and flip rather than a rehab and rent. So I decided to go forward with a rehab and flip because I thought this would be an awesome opportunity to learn how to rehab from afar, make a profit in the process and use that profit for more real estate investing.

I'm 80% done with reading David Greene's Long Distance Real Estate Investing. I've read that book on and off. And I started reading J Scott's The Book on Flipping Houses. Thanks again for your input.

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Mary M.
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
6y

I sure would not ever renovate a property that i was not right there to manage the Work. Wayyyyyyyyyyy too easy to get ripped off.  How will you know things are being done correctly and that you are not being ripped off financially? Seems like a very risky thing to do for your first RE adventure  

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  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    6y

    I sure would not ever renovate a property that i was not right there to manage the Work. Wayyyyyyyyyyy too easy to get ripped off.  How will you know things are being done correctly and that you are not being ripped off financially? Seems like a very risky thing to do for your first RE adventure  

    2Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    6y

    Also question - if he made “some handsome profits” why does he need your money? Seems odd to me. 

    1Reply
  • Clifford Adikuono
    OP
    Highland, CA · Member since 2018 · 10 posts · 3 votes
    6y

    I'd ask for pictures and/or video walkthroughs every other day. I can see the transactions going thru the LOC. I'd also ask for invoices to be attached to those transactions and call up the vendors on those invoices for confirmation.

    I definitely asked myself why he even needs my money. So that's a question I plan on asking him. My initial thought is that my money instead of his money would allow me, not him, to bear the risk of the DP and the mortgage.

    0Reply
  • Luis DeLaRosa
    Fairfield, CA · Member since 2017 · 7 posts · 3 votes
    6y

    Hey Clifford, 

    I'd like to help. Question, why conventional as opposed to hard money. 

    1Reply
  • Luis DeLaRosa
    Fairfield, CA · Member since 2017 · 7 posts · 3 votes
    6y

    In regards to the contractor. I'd ask for references of past jobs done, other Joint Venture partners names and those jobs if any.   

    1Reply
  • Clifford Adikuono
    OP
    Highland, CA · Member since 2018 · 10 posts · 3 votes
    6y

    @Luis DeLaRosa-Hard money would be too much cash upfront. Good point on the references of past jobs done. Thanks :)

    0Reply
  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    6y

    @Clifford Adikuono Welcome to BP, and I'm glad you asked these questions!

    Here are my thoughts:

    1. In the few days that I have with him, what questions should I ask him?

    Why is he even considering a partnership at this point (look for body language changes when you ask this question)

    2. When he shows me his current rehab project, what should I watch for and what should I note down?

    Why would leave in the completed product...

    3. How could I prove myself to be the right business partner for him?

    Typically, you can't prove much on the first meeting. That said, things will start to unfold when you actually start working together. 

    4. If we decide to do business together, how should we formalize the partnership?

    Set up an LLC and get an operating agreement that spells out who does what (Get a lawyer to do this)

    5. Do you have any other tips/suggestions?

    Personally, if I was starting out in REI and wanted to invest out of state, I would never do a flip project talking from someone who flipped a few houses. I would buy rentals or small multifamily. 

    Remember, the whole idea of investing is getting money to work harder for you and building wealth is typically from passive income and not cash windfall, which is what flips are. 

    1Reply
  • Theresa Ortez
    Real Estate Agent · CA · Member since 2019 · 23 posts · 16 votes
    6y

    Hi @Clifford Adikuono, I'm a CPA and realtor here in Southern California and have been acquiring properties both in and outside of the state.  If you plan on working with a GC out-of-town, I would hold tight to your purse strings.  

    1) Wouldn't give the GC funds without seeing the work that has been done and what is to be done with the funds provided.  

    2) know what the rehab budget is and how long the project should take. 

    3) Plan to visit site if the project is going longer than 90 days.  Also have another independent party, maybe a local realtor or attorney in the area take a look at property periodically and send photos.  Keeps everyone on the same track. 

    1Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Luis DeLaRosa:

    Hey Clifford, 

    I'd like to help. Question, why conventional as opposed to hard money. 

    Hard money is 2-3 times the cost of conventional or a line of credit.

    1Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    1Reply
  • Clifford Adikuono
    OP
    Highland, CA · Member since 2018 · 10 posts · 3 votes
    6y

    @Ola Dantis-Thank you :) Glad to be part of BP. I asked him over the phone why he's even considering a partnership and I think he gave a good reason. I risk losing my DP and having to pay any outstanding balance on the LOC and he risks losing all the profits as the house would be under my name. Should I ask again why he's considering a partnership but in a different way when we meet each other? Or can you think of another question that I could ask? Sorry I don't understand your reply to question #2. Do you have a referral for a lawyer who can set up the LLC and operating agreement? And it's definitely on my mind to have a cash flow instead of a cash windfall out of REI but I think it's still a good opportunity to at least learn the long distance rehab part of this project and get a cash windfall out of it. Thank you very much Ola. I really appreciate your answers.

    @Theresa Ortez-Regarding giving the funds to the GC, do you recommend asking him to do some part of the work first out of his own pocket and then releasing the funds? I plan to put together a scope of work, a budget and a schedule. He typically plans to finish the rehab in 3-4 weeks but he really pushes for 2 weeks for it to be complete. It's interesting to hear about your idea of getting a realtor or an attorney to visit the site and take photos. Do you have a referral for a realtor or an attorney in GA? And how much would it cost to hire someone to do that and why would someone like a realtor or an attorney be interested in making money that way? Thank you very much Theresa. I really appreciate your answers.

    @Greg Dickerson-I asked him for references and I'll be sure to ask one who's current. I also asked him for his license. His license is based in Tennessee. He hasn't used it in a while because last year he was a subcontractor and the Georgia area that he currently works in doesn't require a license if you live outside the limits. Have you heard something like this? He'll send pictures/videos of the job site for cleanliness, organization and quality. What's the best way to verify that his pictures/videos are legit? Do you have a referral for a lawyer who can set up the LLC and partnership agreement? Is a partnership agreement different than an operating agreement? Thank you very much Greg. I really appreciate your answers.

    0Reply
  • Theresa Ortez
    Real Estate Agent · CA · Member since 2019 · 23 posts · 16 votes
    6y



    @Clifford Adikuono Great questions. I don't have experience in Georgia market.  I'd work with a local attorney or realtor as part of the transaction to draw up partnership agreement and list the property for sale.  I would ask if they are willing to go by project as part of the business you are sending their way.  Even if it is their assistant that goes by, you have a pulse on the project. Congratulations! It sounds like an exciting project and hope to see your results posted. 

    1Reply
  • Clifford Adikuono
    OP
    Highland, CA · Member since 2018 · 10 posts · 3 votes
    6y

    @Theresa Ortez-That's an awesome idea. Thank you so much. Let's connect and keep in touch. I'd like to hear your story of becoming a CPA and then a real estate agent. I hope so too :) 

    0Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    6y

    I would be curious what the GCs timeline is for the property if it is “pretty run down”  i would expect more than a couple weeks  

    Also, alarm bells are going off when you say he does not have his GC license? 

    And finally make sure you send him funds and that he must provide invoices, copies of reciepts etc before releasing funds

    I dont like being a pessimist, but this  project sounds like an easy way to get ripped off unless you are very careful and have processes in place  

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