All Forum Posts by: David Benton

@Jim Keller When sending postcards, how are you complying with SEC guidelines without using compliance docs for Reg D, screening and registering Form D with the state? 

@Edward Stewart, Family and friends are who I started with as well. I did flips and I always gave them an equity split in the deal or preferred interest such as 12-15%. If doing rentals you probably want to be a bit conservative as in 6-8% so that you cash flow but that would depend on the type deal structure you are doing as well. There are a lot of variables that can come into play such as seller financing, subject to existing financing etc... Cash flow can make or break.

My view, if you're just doing debt financing 12-15% is right on track. Another option is to suggest an equity position which would be determined by the project size and risk. An equity position should be more attractive to you than the 12-15% debt. 

Can someone lay out the guidelines for attracting private money into a deal on social networks that complies with SEC Title II Title III rules? I've read numerous articles and some are ambiguous, contradictory and tough to determine what is actually legal.

Not suggesting what I do is the only way, just my rule. A GC that needs to keep a crew busy when work slows is going to view this completely different as their objective is to keep their crew busy.

No way I'm going to do an intense rehab which is very time consuming and make the same % profit as a carpet & paint deal that is only a few hours to line up the work. I might do a cosmetic and only make 20% ARV or even less in heavy competition but not a complete renovation. Flipping houses is a job, not really the preferred investment model to begin with, it's $ for hours.

Hey Ben, yes, you start by asking a GC to meet you at the property to give you a rehab estimate and always be up front with people. You build report with the GC at that point. Ask him to itemize the estimate and there's your numbers to put together a rehab spreadsheet which is useful in the future. Then you may want to meet with another GC. The important thing is do not waste these guys time or your time. 

Meet with a realtor or two as well. When you meet the right one you'll know. With the realtor you need to pay them to provide comps or give them the listing to sell when complete, whichever makes sense. The rule is, if they don't work out find another but don't waste peoples time and build a reputation of someone who makes things happen.

If you find this is a $160k rehab you know the asking price is high and/or if you learn the value is $520k instead of $580k you would open negotiations with the wholesaler or just walk. 

ARV x 60% - rehab = offer

You could go a little higher if this is in a great area that sells in a week for asking price and if in a very competitive investor market.

For a cosmetic rehab ARV x 70% - rehab = offer (maybe 75% under competitive conditions)

Hope this helps.

I have friends that are wholesalers but I never ever trust a wholesalers numbers as I have never found their numbers to be right. They naturally overestimate value and understate repairs. If you overestimate value and/or understate repairs you will lose your profit and may end up with a loss.

I've done a lot of rehabs and very rarely get an estimate on repairs up front unless it's structural or something I don't already know about what the cost is. 

Personally I have a spreadsheet set up with repairs that I put together with everything needed for the rehab. I know very close  what a roof costs, HVAC, water heater, windows, flooring, painting, remodeling kitchen, baths, lighting, electrical, plumbing, landscaping etc... The risk is leaving something out. If there's a crawl space I will have someone check it out unless I'm willing to take the risk. The bigger the rehab the better the discount. 

I was talking with a rehabber last week that bought a home for $125k and has put $120k in rehab so far with a value of $320k. They are already at 80% when complete, probably another $10k to complete. I would not have touched this as the numbers never made sense. This was a major rehab which should have been purchased at 55% to 60% ARV. If she had bought at 60% even if she calculated rahab at $100k she would have only paid $92k and she would still be ok on the profit side.

That said, you have a major rehab as well. An addition of extra bed and bath is a major expense but if you know about what this will cost in your area, no big deal, $220/sf or whatever that number is. This is what I would get a close estimate on and maybe from 2 GCs or builders. 

A purchase price of $312k seems a little high to me but may be good depending on how close the values and repairs are. I would not be going into this thinking $111k is lot of room for error because, it's not.

On the values you should have a good realtor on your team to help you with comps and on repairs, a good GC or 2 to help with rehab expenses.

Wouldn't it make sense to set up an escrow with your title company and have all funds held in escrow? The only legitimate expense a private lender could require to be paid outside of escrow would be for an appraisal and possibly credit app. 

Some private lenders will require an appraisal and will pull credit at your expense. If this is the case you could request the contact info of their preferred appraisal and pay him directly and pay the credit report directly. 

Still a loss but no gain to a scammer if paid directly to the providers. This would still be funds at risk but only $400 for appraisal and $25 for credit and nothing going to the lender.

A way to vet the lender is to get their information to check them out. If they have money they probably own their own home. Get their name, address, DOB and social. If a private lender has issues providing this information I would ask why. They are vetting you so of course, I'm going to vet them as well.

At minimum search county records for the address and verify the name matches. If not I would ask them why. 

@Scott Choppin

Good information and thanks. I ended up working off the projected final sale price times 20% land value using ROI and IRR to pitch some investors. I still haven't gotten anything rolling forward but will in time.

There is no transfer of title on record, therefore nothing that would accelerate a Due on Sale. The only thing of record is a Memorandum of Agreement. This is a very sound way of doing the deal with very little risk.