All Forum Posts by: Bill Hinshaw

Purchase price per sq ft in Dallas can range from $50 - $300 depending on the area. I would assume you will find a similar variance in Houston. My recommendation is to start analyzing specific areas of interest in Houston using Redfin.com. It will show you a table view of all the listings in an area with $/sq ft included in the table. You can sort by cost/ sq ft, and it will show you the average cost/sq ft at the bottom of the table. You can even export the table to Excel if you want to.

Keep in mind this will be list price per sq ft, and not actual sold price/sq ft.

The other thing you could do is request comparable sales data from a realtor for a specific area. This will be based on actual selling price and will be a more accurate reflection than list price.

I am assuming you would be an equity partner entitled to a % of profit, and not a lien holder. Correct? The deal set off a few red flags for me. Who holds title? If you don't hold title, how do you know you'll be protected? What happens if the GC goes over budget? How will you know if he/she is legitimately over or is sucking all the profit out before investors get their cut? If they've already started the project, why are they still looking for investors?

These would have to be people I would trust to raise my kids, or they would have to have a huge track record of success in similar flips with multiple references.

@Bruce Clark There are 100 ways to be wrong. It sounds like you have a decent deal on your hands. 40k potential profit on 175k ARV - those are great numbers. If you believe your numbers, there is no reason not to move forward.

Like my wife always ask me - realistically, whats the worst that can happen if you buy this house, and can you live with it?

We stage with furniture we bought from a stager who was closing their business, plus things we've accumulated over the last few years. It is hard to know what impact it has on our sales prices and days on market, but those studies are out there on a larger scale. I would say just the visual impact of walking into a well staged house vs an empty house makes a big impact on the buyer.

It will cost you about $500 to have a structural engineer analyze and make recommendations for how to fix. Money well spent. Is it pier and beam or slab? A crack doesn't necessarily equate to an expensive or unrepairable foundation issue, especially if you are pier and beam. 

Bruce - seems like a solid deal to me. You're already pulling actual comps to verify your assumptions. I would look at those closely. Make sure you know not only the ARV but also the days on market you should expect.

A mid to low range ARV 3 or 4 bedroom property in a high demand area with low days on market MIGHT be a good candidate to list with a low cost broker. That's something you could check out to see if you could squeeze another 3% out of the property. It isn't something I would do if my house had strange layout issues or was the biggest in the neighborhood, for example.

I just took a private loan from a friend for 80k with a minimum return of 5k for what will most likely end up being a 4 month timeframe. He is in first lien position on a house with an ARV of 500k, so he is well protected. I've found that to be a good, easy solution when the loan amount is low enough.

If you have been at your employer for a long time, or you have friends who would fit that description, some 401k providers will allow you to take out a loan for as much as 50k. The 401k holder is basically taking a loan from himself and paying himself interest while the money is out, plus whatever interest they are receiving from you. That's another solution you might consider.

Your local bank may be an easier solution than you are expecting, especially since you already have history with them. I would check with them to make sure they do short term construction/renovation type loans. Some banks don't.

It could work. Instead of you kicking in 10k on the front end, I would wait and pay that to the flipper when the property is refinanced. That way the flipper collects 25k on his 80k investment. That's a decent return; its fantastic if the flipper financed 75% of the purchase price plus renovations. Edited to add - My math is wrong. The flipper only gets 15k either way. 

As @Sid Leibowitz alluded to, though, you have title issues. You hold all the legal rights to ownership while the flipper is putting in all the capital. How do you solve that problem?

Also, I'm only slightly familiar with BRRR... how long do you have to hold the property before you can refinance? If you can't refinance immediately and take the flipper out, I can't see this being very appealing to the flipper.

@Hank Sacco I see your point, but I'm going to somewhat disagree. You can invest $1 in a venture, or you can lend me $1 so I can go off and do that venture on my own. Your $1 can't be both an investment and a loan. In other words, if you are going to charge me interest, I'm not likely to give you an equity position in the venture.

There are situations where your comment makes sense. Example - 300k required for purchase and rehab. Cash partner supplies full 300k. Of that, 25% (75k) is his equity position in the joint venture, the remaining 225k is a loan to the venture at an acceptable interest rate. I can see that type of arrangement working successfully.

I lean more towards @J Scott's line of thinking.

Another way to look at is in terms of party B's required cash outlay for the purchase and rehab vs party A's required cash outlay and/or equivalent man-hours to find the property and get it under contract. 

If party B is putting in 100k cash to make the deal happen, that would require party B get a larger % of the profit since 100k greatly exceeds whatever party A had to do to get the property under contract. Now if party B only has to put up 10k cash outlay, now you're getting closer to a scenario where party B's cash and party A's effort to find the house are of equal value, and a 50/50 split would make more sense.

Piggy backing on @Jeff Sprunger...

What I'm seeing in my market is HML for wholesale deals that need to close in 10 days - 2 weeks. If you're buying from the MLS, or if you are negotiating with a seller that doesn't need to move quickly, there are less reasons to close the deal with a HML.

There are more and more banks every day that will loan on these properties. They take longer to close, and they are more stringent on their lending requirements (they'll need W2s, tax returns, etc). As long as you can deal with that, you're going to get much better rates through banks or traditional lenders than HML.