All Forum Posts by: Will Barnard

 This is great advice and I agree. Most gurus are scams in that they take your money and don't really offer much in return (and as Evan stated, the bigger the guru, the more likely that is). That said, if you can gain some basic knowledge and take away a few good nuggets from a course as a newbie, then it could be a good starting point (of course the best starting point is doing what you are doing here, engaging the BP community).

In my opinion, most risk management comes from proper deal analysis and not specifically what is in the loan docs. For true private money lenders (not hard money), both parties naturally need to be protected but more so the lender since their money is at risk. This is why I personally deliver and execute a personal guarantee rider on all my private investor loan money borrowed. Some investors think I am crazy doing that and perhaps so, but I take other people's money seriously and even when the crap hits the fan (and it will if you do enough deals for a long enough period of time), paying back your lender is priority one in my book.

Most of my deals for private money also include a balloon payment rather than monthly payments. This is never accomplished in hard money loans and some may feel this adds more risk to the lender not having interest paid as you go, I argue that not having to come up with that monthly interest payment reduces the amount of capital needed for that project total and there by reduces the loan to value needed which helps both parties. Lets face it, the real risk is the principle anyways so protecting that is most important.

I also have no early payment penalties and often, the ability for the investor to roll into the next deal allowing their capital to be constantly working for them.

All loan docs should include the interest rates, loan terms, and payment schedules. 

A lot of rehabbers get in trouble when they go over on budget or over on time. So having safeguards in your loan docs or safeguards/plans outside of loan docs is essential so both parties know what the plan is if and when such occurrences take place.

 I hear these comments a lot, I agree that you should always ask the wholesaler if he/she is direct to seller. If there is any daisy chain, good luck, the equity is already stripped from too many hands in the pot (in almost every case but not all).

The ARV and rehab costs NOT being the wholesalers job to give: I disagree. As a true wholesaler, how do you bring value to the table if you didn't perform these tasks and how did you ever come up with your offer price if you didn't do this!! Now while I agree many wholesalers, if not most fail miserably at this process and most of that is to make a non deal look like a deal. Inflated ARV's and underestimated rehab costs are common practice with most wholesalers, much of which are newbies who have never flipped a home themselves.

As another stated, there are other ways to land deals besides wholesalers so cast a wide net and use multiple avenues to funnel your leads. This will improve your odds of successful flips.

When a wholesaler has a bunch of flip buyers coming to the house at the same time or throughout different times, your odds of getting that deal at a number that makes sense diminish. Having inside relationships with quality and experienced wholesalers who actually know how to properly evaluate ARV and rehab numbers is a plus. YOu as the buyer showing proof of your ability to pay (through actual bank statements with cash and/or closed sale transaction proof showing you are a proven all cash buyer that closes will instill confidence in the wholesaler and allow them to perhaps make less on the deal but can do more deals knowing they have a quality buyer in hand is a win win. YOU are in control of your money and YOU must also verify the numbers (ARV/Rehab), even if the wholesaler is quality at doing so, verify, verify, verify. Then location, location, location matters after that.

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $735,000
Cash invested: $1,060,000
Sale price: $2,825,000

New Construction project in Sherman Oaks. Purchased all cash as a major fire damaged home & knocked almost all of it down and re-built it with new addition and rooftop deck with jet-liner views of the city! A modern contemporary masterpiece, the amenities and finishes in this project are top notch. Rooftop deck has built in BBQ, fire pit, surround sound, & an above ground spa! Listing in zillow: https://www.zillow.com/homedetails/3859-Sherwood-Pl-Sherman-Oaks-CA-91423/19986918_zpid/?view=public

What made you interested in investing in this type of deal?

Been doing it for years.

How did you find this deal and how did you negotiate it?

Connection with listing agent and my agent to strike the deal.

How did you finance this deal?

My Private Investors

How did you add value to the deal?

Demolished it and re-built it with new addition plus rooftop deck.

What was the outcome?

Unfortunately this was held way too long due to a number of factors, including COVID, city planning and permit delays, delays in construction and materials, and additional delays by city.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Myself

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $735,000
Cash invested: $1,060,000
Sale price: $2,825,000

Single Family Home New Construction project in Sherman Oaks. Purchased all cash as a major fire damaged home and knocked almost all of it down and re-built it with new addition and rooftop deck with jet-liner views of the city! A modern contemporary masterpiece, the amenities and finishes in this project are top notch.
Currently in escrow and should close this month. Buyer has released all contingencies. Rooftop deck has built in BBQ, fire pit, surround sound, and an above ground spa! Listing in zillow: https://www.zillow.com/homedetails/3859-Sherwood-Pl-Sherman-Oaks-CA-91423/19986918_zpid/?view=public

What made you interested in investing in this type of deal?

Been doing it for years.

How did you find this deal and how did you negotiate it?

Connection with listing agent and my agent to strike the deal.

How did you finance this deal?

My Private Investors

How did you add value to the deal?

Demolished it and re-built it with new addition plus rooftop deck.

What was the outcome?

Unfortunately this was held way too long due to a number of factors, including COVID, city planning and permit delays, delays in construction and materials, and additional delays by city.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Myself

Seller carry is a whole different ball game and with that, your options are much better. So certainly you could do a deal like that with a seller carried note on a free and clear property.

This is very tough to answer as each investor and each project is different. How do you currently perform your construction? Hire a GC, hire subs and act as GC, or do you have your own crew (in which you should be licensed)?

When I started out, I did one flip at a time and here in CA, my acquisition prices (back in 2009) ranged from the $250k-$400k range. I hired each individual trade and acted as my own GC as owner builder. Then I started doing multiple at a time and as prices increased, I also increased my acquisition prices into the $600k-$800k. At that time, I even employed a couple GC's as well as doing my own GC work. Finally I got licensed and hired my own crews and continued on to doing multi million dollar projects. I still do that as well as some average starter home flips Though not recently due to market conditions last few years.

I have crews that are 1099 and others on payroll so I have a mixture depending on the trades and the projects I have on my books. That said, having my own GC license (I am also licensed in roofing, HVAC, & plumbing) allows me to to work not just for my own projects but for other developers and retail clients. This has allowed me to build not just my real estate business but also a home services business which has really taken off and provides additional income streams for me between my flip/develoment  paydays.

I concur with @Scott Trench above. Politics and bashing thereof has no place but healthy and pertinent discussions like the one above seem fine to me. Political policy that affects real estate and the investors that buy and sell it should absolutely be talking about the positive and negative effects of said policy's to help make better decisions moving forward. 

As an example, people often bash CA and when it comes to landlord tenant laws, RIGHTFULLY so as CA laws swing way to the tenant's side as if all landlords are billionaires with money to just hand out to any freeloader. So long as people stay on topic of the impacts of these laws, I see only positive coming from discussing it.

 This advice above hits the nail on the head. Clients don't (and should not have to) produce contracts for construction, the contractor does that. Each state has its own laws and regulations and each licensed contractor should know these rules and include, at minimum, what is required by law in their state. 

As both a contractor and a client, I have personal experience on both sides of the fence here. One thing I include (for any significant contract amount) is penalties for contractor being late and bonus for finishing early without sacrificing quality. These terms help keep both parties in complete alignment with the goal, to get the job done efficiently. As a client, paying a bonus to the contractor (typically calculated by my daily cost savings of holding costs) actually has zero cost to me and eliminates that bonus time from opportunity loss, thus a win win for both me and the contractor. As a contractor, same thing, getting a bonus increases my profit margin and not performing to the standards agreed to penalizes my profit margin, a fair trade off.

This issue is not a one off occurrence, it is very common place. Many wholesalers just do not have the skills to properly evaluate rehab costs or exit values and many inflate the ARV to make the deal look better. Like with any industry, you have to weed out the wannabies and keep the small few that actually can provide real deals.