All Forum Posts by: Alexandra Gomez

Thank you @Andrew Postell

Is it possible to get a FHA loan and subsequently adding someone to the ownership of this property?

@Sam Shueh it all makes sense. There are many other factors involved. One of the reasons why I am doing this exercise is to pragmatically understand how a partnership with a contractor would work out fairly for both parties. 

@Charlie MacPherson

I would bring some cash equity and I guess I will be bringing the lender as well. Probably hard money lender. And this is a whole new world to me.

Here is what I was thinking and please bring me down to earth if my idea makes no sense

Total cost of project including land: $250000

My cash equity: Let's say it is $40000

Contractor's cash equity: None. I guess it would be sweat equity. Let's say that the contractor fees for a project like this (excluding materials, permits, etc) is $80000. I looked it up online so I am sorry if I am way off, this is just a guess.

Let's say that somehow he can manage building this property without a salary (because his salary is the $80000 he is putting down in sweat equity) 

Here is the loan:

$250000-$40000(My cash equity)-$80000(his sweat equity)=$130000

Now things get complicated when I think of who assumes the loan and how much of it. I was thinking about assigning a portion of the loan to each of us based on our "equity". So because his equity surpasses mine by $40k I think it would be fair to divide the loan by two and add $40k to my portion, the remaining amount would be his part of the loan

$130000/2=$65000 (if we both had put the same equity)

$65000+$40000=$105000 (my part on the loan)

$130000-$105000=$250000 (his part)

The reason why I would like for him to assume part of the loan (as small as it looks in comparison to what I am assuming) is for him to also feel that the longer the project takes until is finished, the more interest we would be paying (both of us!)

Since you have experience with this type of partnership, please let me know if this makes sense to you. What would you change? suggest? How did you take roles and financial responsibilities on your first flip?

Did you and your partner have an attorney, financial advisor or a third party that would help guiding the partnership and writing agreements?

I appreciate it

Thanks!

@Jake Weir here is some clarification I got from the potential partner

Total cost of project would be $250000 including Building Permits (is this what you mean by entitlement?) and lot ($60000) My cash investment would be $40000. 

What are your thoughts based on this updated info?

Thanks for sending that link!

Thank you all. Really good points to consider and questions to ask myself and the person who's proposing the deal. 

Hello,

If you were an investor and you got a proposal from a contractor for the deal below. Would you accept it? if so, under what conditions? what questions would you ask the contractor? what aspects would you consider? if the deal does not make sense a lot, how would you modify it to make sense for both of you? 

I know this information is very vague but my goal is to learn to judge a good proposal from a bad proposal with little initial information and developing the judgement required to modify a proposal so that it makes sense for both parties in case the other party has too much advantage over me. 

Here is the deal: Contractor proposed to buy a lot and build a duplex. The ownership would be 50/50. The contractor won't participate in cash investment. His equity is his work (according to online estimations, the contractor's fee for this type of construction is $80000). The idea is to buy, hold for 3 to 5 years and maybe sell afterwards. The investor has $40000 available for cash investment and the rest would come from a hard money or construction loan with an interest rate from 9% to 11%.

City: Sacramento, Oak Park

Cost of the lot: $60000 

Lot size 4000sqf

Cost of construction: $250000 (according to contractor's estimation)

Total amount: $310000

Time of construction: 6 months

Property would rent for $3000 Mo

Partner 1: Contractor. He would make no initial downpayment. His equity would be his work. According to online estimations, the contractor's fee to build a property like this would be $80000

Partner 2: Has $40000 for initial cash investment available. The rest of the money would come from a hard money/construction loan at a rate from 9 to 11%

Please help!

Thanks,

@Chris Seveney thank you! I did find some great calculators in BP and other sites. These are the ones that I was suggested to use for quickly comparisons: Cash on Cash ROI, Cap Rate, DCR, and IRR. Would you suggest any other that can serve as criteria to compare and filter out some bad deals?

Hello,

I am comparing deals and I would like to know if any of you has a quick calculation that helps me find out what would be the estimated return on income if I decide to sell the property after holding it for 3 years including closing and selling costs.

I am aware that there are many variables involved such as taxes, amortization, appreciation, etc... 

Thanks!

@Terry Lao they have good rates. Below 4% https://www.logixmortgage.com/default.asp?siteId=C...

I need to call and ask if they have a license in NV.

Thanks for all the info. I may bother you with some more questions once I have a better picture of the situation. Thanks for all your help