Need suggestions on how to structure/save a deal

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Need suggestions on how to structure/save a deal

Max Biggar
Investor · Atlantic Beach, FL · Member since 2015 · 36 posts · 13 votes

What up BP! Need some suggestions here. 

I have 2 properties under contract in Atlantic Beach FL, near Jacksonville. 

The first I am getting bank financing on so all my capital is tied up with that one. This will be a flip.

The second (also a flip) I don't have any capital leftover for and don't want to lose out on the deal. My sister said she would get the financing for the property and partner with me. So I had the contract drawn up with both our names on it and the plan was for her to get the loan in her name (so my financing on my other property wouldn't be effected) and supply the cash to close. Then I would manage the flip and split the profits 50/50 once sold. 

The numbers

$300k purchase price (FSBO seller had appraisal done for $345k as it)

$40k repairs, plus ~$20k financing/closing costs both ends

$400k ARV

Profit ~$40k ($20k each)

(Really needs $70k to fully update the house then the ARV will be $450k, but we can likely only afford $40k rehab)

Numbers are pretty tight but the neighborhood is hot and and relatively low risk as it would sell immediately for our break even of ~$360k

My sister is getting cold feet as she would be pulling the money from her 401k. I don't want to lose out on the deal so I was just wondering if any one had any recommendations on how else to close on this deal in case she backs out. I would possibly assign the contract however we used a Realtor contract and checked the box to not allow for assignments. 

Cheers!

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  • Zachery Buffin
    Investor · Away · Member since 2017 · 167 posts · 131 votes
    9y

    Just a thought but could you live in one of the properties and do the proper kind of flip over a longer time period? If so, a lower down payment loan may be available to you. 

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  • Max Biggar
    OP
    Investor · Atlantic Beach, FL · Member since 2015 · 36 posts · 13 votes
    9y

    @Zachery Buffin That would likely be the most profitable way to do it and wish I did that a few times while I was younger. My wife will definitely not go for that now though. 

    I think the terms are actually pretty good on the financing we are doing. We are doing a homestyle reno loan for 15% down of the purchase price AND rehab with a rate of 5.25%

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  • Zachery Buffin
    Investor · Away · Member since 2017 · 167 posts · 131 votes
    9y

    @Max Biggar

    Hmm, well without diving into every asset you have on hand and getting a little too personal for a stranger you met on the internet I would say that the obvious routes are blocked so now lets look at the less obvious ones. Full disclaimer I think you should drop it, this wreaks a bit of emotional connection, if you don't have the money right now then cool your jets and wait for the next deal. If that is out of the question lets dive in.

    You cannot assign the contract, meaning you have to close with your money, so how do we do that? Well the first though that comes to mind is to talk to an accountant and see what you can do to lessen the penalties for withdraw. HELOC from your own house is risky but may be doable if you have the equity there. Look to leverage assets that you have, obviously don't go too crazy but if you can make it work and profit then find something you can borrow against.

    If you really just cannot lose this deal have you ever been to a local real estate investor meet up? Money men abound in places like that, get on Facebook and look at the REIN pages start connecting. The money is out there and if you offer the same terms to them you did your sister they will likely even front the full 70k for repair to pull the better ARV.

    I am really stretching here so let me know if anything is helping you out at all and if so we can explore that a bit more. If not then I think I might really have to dig deep into my bag o tricks to pull something out.

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  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    @Max Biggar

    Try going to or contacting local REI club and meet-up groups. There might be some Private Lenders you could hook up with.

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  • Account Closed
    Lender · Stuart, FL · Member since 2017 · 112 posts · 37 votes
    9y

    Is your sisters cold feet due to risk alone or trust in what you are doing. If her note will be a homestlye product maybe the ARV appraisal will offer some comfort she will also need to get a market rent schedule so if not able to sell you could show the hold cash flow option.

    Or have you though of offering you sister a bit more of the split or some kind of extra offer to make the deal more sweet to her? If she has all the risk in capital and name on the note I can see the fears. 

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  • Max Biggar
    OP
    Investor · Atlantic Beach, FL · Member since 2015 · 36 posts · 13 votes
    9y
    Thanks Bill Walton She is hesitant on the risk. She will have a tight budget during the flip process as her 401k payback will be high on top of the loan payments (hopefully only 2 since we are planning to close on the 1st of the month which will give us 2 months to renovate and put on the market before 1st payment is due). She is also concerned that she is taking all the risk and wants more from the deal. Yes we analyzed keeping as a rental if it doesn't sell and it will break even after capex and vacancy. Yes I am hoping the arv appraisal will make us feel better as well. We decided to give her a 60/40 split if the total profit is <$25k and we will do a 50/50 split if the total profit is >$25k. Her cash in the deal will be ~$60k The anticipated total profit if everything goes according to plan (always happens right) will be ~$60k, so $30k each. We already have quotes for all the work and nothing major so hopefully no surprises, mostly just updating. Thanks all!
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