All Forum Posts by: Will Barnard

I will add to @Jerryll Noorden post and state that aside from being honest and transparent (something I have been preaching for years on this site) you are doing it backwards too. Let’s say you have this convo with seller and they agree to a price with you, how do you know this price is good and that you can find a buyer in time to flip the contract too? You are essentially brokering without a license.

But, if you have a cash buyer already, then you know what they are looking for and at what numbers so you can confidently negotiate with your sellers (you know these things because you ask you buyer and get the answers). Plus, you can easily and legally structure the deal properly now without violating brokering laws. So aside from how to approach the seller, you first need to have proven cash buyers in hand first.

Can it be done the other way? Of course, but you have zero downside to doing it in the manner I laid out and many downsides to doing it the way you are attempting now.

Quote from @Justin Pearson:

@Jay Hinrichs Do you think the potential of the market downturn we're beginning to see will motivate people to sell now before the floor falls out from under them? I understand that this difficulty is compounded by the fact that investors will see buying as more risky and make sure the deals are screamin and solid before signing on to a new project. I prospect dozens of wholesaler leads every morning in my inbox and the majority of them are garbage, and I know my buy box has become more restricted as a result. Other than offering lower prices and accepting a smaller margin, what other strategies do you suggest. And another similar question, could you rank say the top 3 hardest parts of your job now vrs say 6 months ago? Maybe some strategies you use to mitigate those challenges?

Everyone has opinions on this topic but many of them lack any foundation. Thinking or saying prices will fall and sellers will sell without providing any supporting info to back that claim up is just wasted type.

Currently in the US, a much larger percentage of home owners have equity and savings compared to the last Great Recession. Homeowners with equity who have low current fixed interest rates in the 2’s, 3’s and even 4’s are going to be much less likely to sell as they would have to then buy with interest rates approaching the 6’s. For most, that would not make good financial sense and this situation will likely result in less homeowners becoming sellers which will reduce the inventory of already record low inventory. The interest rate hikes themselves will price out many new would be buyers forcing them to continue to rent. This will likely place some downward pressure on pricing, particularly for the median home values and below. So with this information in hand, it is likely that home prices will flatten (stop rising) and potentially retract slightly in some (not all) areas of the country as homeowners are priced out of the market due to the higher rates. So you have a pull in both directions here and depending on which pulls harder will determine what’s happens to prices in your local market. A 6 month inventory level was considered to be historically average between a buyer and sellers market. We are well, well under that almost everywhere and it is my opinion that 4 months is the the new 6 month average. Once supply gets above that, further downward pressure on prices is likely to come,
If you find yourself in a buyers market, that may be helpful for your acquisition as a wholesaler or flipper (or buy and holder) but not good as the seller, so you have a catch 22 here that needs to be addressed.
Wholesaling with real spreads to flippers has not been any easy task in the sellers market we have been in for years and while that may improve slightly, the resale would then be hindered causing a problem on the other side of the coin.

Another option is to pay them only for leads brought in. So if they fake the call, they don’t have a lead to supply.

As for cold calling in general, you may very well be violating fcc regulations. I can’t stand spam calls or texts and they have gotten out of control in this country. Please don’t add to the problem, there are legal and better ways to get leads starting with an online presence using SEO.

Aside from here, contact your title company and have them produce a list of closed all cash transactions in your county where the buyer is an entity and that entity repeats at least once in a year. There is your proven cash buyer list. Then look up the entity on the ca state website and find their mailing address/contact info. Addresses can be found in the statement of information file for each entity.

He thing not mentioned and should be considered is this, is doing the labor of contracting above or below your pay scale? While I can demo the house myself, why would I when I can hire that out at $20 p hour when I make hundreds an hour doing other tasks like finding deals, raising capital, managing the business, etc. You should not waste your time doing work that you could otherwise hire out at lower rates than your value in time.

While you think you are saving money, you really are losing it doing these tasks yourself.

For this contractor that screwed you up, that is just a lesson for you on how to select the right person or team for the job. Consider the costs as education on your business, learn from the mistake and do your best not to repeat it.

Private money capital is NOT the same as hard money, there are several differences but people often commingle the terms inaccurately. 
Private money is found by you telling everyone you come into contact with what you do and what you offer. Targeting those who may have liquid investment capital like stocks, bonds, mutual funds, savings, 401k, IRA funds, etc are all targets. Letting them know to tell their contacts is also a great way to get leads.

How you deliver the message is equally important. I never ask for money, I offer an investment opportunity which is a great alternative to their existing investments. I personally guarantee a

I personally guarantee all my private investors capital which provides them an additional layer of protection and I also have shown a perfect track record. This allows me to easily gain private investor capital for my deals.

I started with family and friends and then branched out from there. An online presence is also helpful but be cautious not to violate any federal or state laws with solicitations.

I have also held educational events to teach about specific topics and in each of them, private ,only investment capital is talked about. These free events are a great way to get a room full of people who benefit from the free education and you benefit by developing private investors through your education to them. This can only come after you have experience of course.

10% is a solid return as a private investor. I didn’t see you mention what state the investment is in, but you should verify that specific states usury limits, each state has it’s own. Since you do not hold a lender license, you are not exempt from usury limits so your note and deed of trust must be within the state limits to comply.

Ensure you have a recorded deed of trust plus a promissory note to secure your investment. You can invest passively like this using your personal name or an entity. Your profits are NOT capital gains, it is interest income. Consult with your CPA for details on this. If you had an equity share instead of a debt position, the profits on flips for that are still NOT capital gains, it is earned income taxed at your income bracket.

The position of your investment (deed of trust) is very important too. If you are in anything other than first position, you have higher risks and as such, may warrant additional protections or higher returns. Additional protections can be additional collateral, personal guarantee by borrower (assuming they have assets to back that), or cross collateral of another investment.

The experience level and track record of the borrower is the primary factor and the loan to value is the second factor. Each should be more than adequate to protect your capital.

Advice from J Scott above is a good start but make sure you check local codes as they may differ. National codes are minimums, local codes could be in excess.

Generally, any bathroom, laundry or kitchen requires all outlets to be under GFCI protection. One gfci outlet can protect the string. Countertops will require x amount of outlets per linear foot. Check with your local licensed electrician for your local codes.

@Bianca Rodrigues
Advice of using the 75% figure is not going to be accurate for all areas, at all price points, and for all investors. That makes this advice very sketchy. Investors must know that these rules (more accurately “guidelines”) which were intended to be a quick back of the napkin calculation to see if the investment was worthy of further review and nothing more. Never should they be used (whether 70%, 75%, or any other %) as a purchase decision.

With that out of the way, here is my answer for how I have choose an investment to flip over the last decade and a half:

The neighborhood is checkpoint number 1. I make sure the street and the houses on that street, along with the streets around it are sufficient to produce a good resale value. Buying a flip that sits next to another junker house (or across the street from it) will hurt your buyers pool which in turn hurts your resale value. When more buyers are interested, you typically get better sold prices from that.

Checkpoint number 2. What is the current market conditions of this area? I want to know the average DOM (days on market) for listings and what the current inventory levels are, what the previous 6-8 quarters of inventory were. This helps me predict more accurately what I can expect the market to do during my hold period. This is important because knowing if the market is likely to stay flat, drop, or increase in price is valuable information.

Next step is to ensure this specific property does not have any major resale defects. What I mean by that is does it sit on a busy street, next to commercial, in an airport flight path, near railroad tracks, no garage (if most homes have them), too many steps from street to front door, no yard space, etc. All of these potential deficiencies will dramatically reduce your buyers pool hurting your resale value and likely increasing your holding costs as it will likely take longer on the market to sell.

Lastly is the numbers of the deal themselves. Purchase price, holding costs (debt service, taxes, insurance, maintenance, utilities, etc), resale costs (escrow fees, transfer taxes, real estate commissions, title fees, recording fees, etc), ARV (I call it exit value) and of course rehab costs. So often investors get the exit value and rehab costs wrong as they are subjective as opposed to holding costs which are much easier to get accurate.

Your exit value less all costs above = your profit. So then you must decide via side by side comparison one investment to another which has a better return. Better returns are not created equal in each investor’s eyes. Some do quantity and have tighter profit margins while others do fewer with higher profit margins. Only you can decide which is better for you on that one.

Lastly, consider the level of rehab which will have a direct impact on your holding costs and rehab costs. A heavy rehab will have longer hold times exposing you to more potential for market conditions to change vs a quick lipstick flip.

Hope this was helpful in answering your question.

Brokers and credit unions are your best bet for a HELOC on your primary to use the funds for investment. It goes without saying that underwriting your investment and building your team are of vital importance to ensure they spit out cash to pay the monthly HELOC payments.