FINALLY I am a investor! Purchased first flip

[Eric Keller]

Hello BP,

My name is Eric and I am from St. Louis, MO. I have been lurking on BP for about 3 months now and wanted to share my story.

Graduated college a year ago and found myself working crappy jobs after being "promised" that I would find a great job in my degree field. Yah ok... (took me a whole year to find a job for what I went to school for) While working these crappy jobs I became interested in real estate investing. I had given it a thought some time ago but really had no clue on how to begin or thought that I needed a pile of cash to get into the game. So, the final crap job was a position I found on Craigslist that took scrap building materials from new home sites and took them to the dump. Coincidence? Maybe but thats when I really got serious about real estate.

Thats about the time I found Bigger Pockets. So much knowledge in one place. Basically taught me everything I needed to know and I have been building off of it since. After I read for about 3 months straight I joined a REI club. Met a lot of people who are willing to help me and answer questions. My next step was to try to get in to investing with little or no cash. Sound familiar? Yes whole sale.

Bought 100 bandit sign and the phone would not stop ringing. All kinds of calls from "will you buy my 100k house" to "help me get out of my current mortgage". Over whelming to say the least for someone who has not done this before. But I did not give up. Field all calls, went to look at properties, and finally got one under contract in 3 weeks of trying. Man I felt great!! So, put it under contract and within 2 weeks I had a buyer. We walked the property and negotiated a price and took it to the title company. Could not believe it! I am going to make money at this. Well long story short huge fail. Received a call from my title company and said the owner of the house has 2 judgements and 60k in mortgages against the house. DAMN! wind out of my sales and dropped hard. Owner lied straight to me and my buyer.

BUT I am not a quitter! So I pressed on and put another one under contract. Free and clear this time but I could not negotiate a low enough price to get a good spread on it. Now, I am thinking I just wasted a lot of time and money for nothing. Almost gave up at this point but started to think about my skill set. I have ben doing all kinds of contracting and construction jobs growing up. Im 26. Plus the 8 million "projects" I did/do with my dad around the house regularly got me thinking.

I can do a rehab!

So fast forward to today. After a lot more reading, searching for the perfect 1st property, and picking up a coach of sorts, which happens to be my hard money lender, I am closing on my first rehab 8/26/13! I am pumped! 3 bed room 1 bath about 1,100 sq ft. With my numbers I estimate that I will take home about $8,000 profit. Its not a full gut to the studs but does need work. I am planning to buy, fix, and sell as my end game.

To keep BP in the loop, I will update with my progress and final numbers of what shakes out as I go a long.

Wish me luck!! and thanks for the education BP

[J Scott]

Originally posted by Eric Keller:

I know that most people will think its a setup to purchase his property, with his funding and he then just takes off and has sold me a wreck.

I actually don't think that's necessarily the case...though I think the outcome is almost as bad...

My concern is that he convinced you to buy a deal where you'll put in a lot of time and effort for a very small payoff, and he'll earn crazy returns (18% interest and 6 points) for convincing you to do it. He has no risk (the property is collateral); regardless of whether you make money or not, he gets an awesome return.

Of course, he wants you to succeed, so he can do the same thing again...and again...and again...and he keeps making great profits off of you. But, even if you don't do it again, he still wins.

Have you thought about how many hours you plan to put in and how much you're likely to earn per hour for that work? Once you subtract out your hourly fee for being a contractor on your project, what's left over is your profit on the deal.

For example, let's say you spend 20 hours/week on this project, and it takes 8 weeks -- that's 160 hours. Let's say that as a contractor, you want to earn about $30/hour for your time/labor/effort. So, of your $8000 "profit," about $5000 of it is just salary for your work. That leave -- BEST CASE -- about $3000 in profit.

Is all the risk worth $3000 to you?

More importantly, do you really think that if this lender cared about your success, he'd advocate you doing this deal for $3000 in profit?

Btw, how much is your lender going to make on the deal? I'm guessing it's about 3 times as much as you will earn (again, your best case numbers). You do all the work, you take all the risk and he makes 3x as much as you (with little work and no risk).

Doesn't sound to me like your best interest is foremost in his mind.

But, all of us here at BP do care about your success, which is why some of us are being blunt about this. Please don't take it the wrong way, we just want you to think about what to look out for in the future...