All Forum Posts by: Patrick D.

I've come across what I think is an interesting, potential deal. I went into this property looking at it as a long term, cash flow rental and may come out of it as a fix and flip...

Here's the scenario:
Two Family House
Asking Price: $60k (cash only), needs $50k worth of work)
Monthly Income - $2400 ($1200/unit)
CAP Rate based purchase (and rehab) of $110k is 16.7%
Current seller is a contractor who got hurt bad by the recession.

[u]Option 1 - My first thought
Offer $35k. Ideal price, mid $40s. Again, needs a ton of work.
Buy the property with a 50/50 partner (I have roughly $50k to invest at this moment) and partner would put up other $50k (or equal amount, enough to complete house). Fix the property, get it fully rented. Post-construction value somewhere between $130k - $150k. In 6-12 months do a cash out refi for 70% of value.

[/u]Option 2 - Thinking outside the box
Offer $35k. Ideal price, mid $40s for property. Again, needs a ton of work.
The seller is pretty desperate to sell. He is a home builder/contractor (I'm not) and bought this property as an investment a few years back. Economy turned sour, he needs to sell, we all know the story. My thought is to buy the house for $40k or so, partner with the seller (he drew up a very detailed scope of work that totals about $50k in repairs but I feel there is still room for negotiation in his number). I'm in for $45k, maybe seller (as my partner) is in for $45k or so. Work done in 1-2 months, back on market. Hopefully sell - low end $130k, high end $150k.

There are a few kickers here -
- The current seller has unpaid back taxes - what can I do about this? How would I go about purchasing tax liens, etc?
- If deal goes sour, I own the property. While he may be able to put a lien against it, I still own the real estate.

I'm looking for ideas and creativity. Obviously, Option #1 is ideal but it is tough finding a partner as I am just starting up. Let me know what you all think.

Thanks!

Hello BP Community,

I've come across a house listed at $219k. After looking at it a few times and discussing with my broker, I think they will accept an offer of $190k.

Problem is the house is not mortgage-able. It is dilapidated and I don't see any lenders financing it. Therefore, I've gone out to a few people with a lot of cash and I've piqued their interest. I have two commitments for the money to buy the property.

Here is the deal - I will foot the bill of the construction/closing costs ($75k - $85k) and my partner will solely buy the property ($195k). I want to show my investor that I am vested and have a lot of skin in the game. I ran comps in the neighborhood and on the low end, this house renovated will catch $385, on the high end, $410k. I have the manpower to have this house rehabbed and back on the market in two months, hopefully sold in 4-6.

What kind of offers would you make to your 'silent partner, hands off' investor? Would you take the $195k as hard money (13%-15%) interest, arrange some sort of profit share on the back end when the house is sold or any other creative ways? Also, who would hold title/deed in this situation? I know forming an LLC is the way to go and what we would end up doing but I want to gain a better understanding of the logistics of a deal like this and if anybody has structured any similar deals.

Keep in mind I would also like to make (and keep) my investor happy as this is my first flip!

Thanks! Looking forward to your replies.

Hello BP Community,

I've come across a house listed at $219k. After looking at it a few times and discussing with my broker, I think they will accept an offer of $190k.

Problem is the house is not mortgage-able. It is dilapidated and I don't see any lenders financing it. Therefore, I've gone out to a few people with a lot of cash and I've piqued their interest. I have two commitments for the money to buy the property.

Here is the deal - I will foot the bill of the construction/closing costs ($75k - $85k) and my partner will solely buy the property ($195k). I want to show my investor that I am vested and have a lot of skin in the game. I ran comps in the neighborhood and on the low end, this house renovated will catch $385, on the high end, $410k. I have the manpower to have this house rehabbed and back on the market in two months, hopefully sold in 4-6.

What kind of offers would you make to your 'silent partner, hands off' investor? Would you take the $195k as hard money (13%-15%) interest, arrange some sort of profit share on the back end when the house is sold or any other creative ways? Also, who would hold title/deed in this situation? I know forming an LLC is the way to go and what we would end up doing but I want to gain a better understanding of the logistics of a deal like this and if anybody has structured any similar deals.

Keep in mind I would also like to make (and keep) my investor happy as this is my first flip!

Thanks! Looking forward to your replies.

Thanks Bryan - that is how I see it.

Thanks Don! Very informative.

I know both sides very well, so I don't think I have to worry about bureaucrats getting involved. Rather gaining knowledge on what the laws are in this field when future opportunities come about.

In my contract I am positioning my ''S'' Corp as a ''consultant'' for the developer. I will seek legal advice in the future, but this opportunity is knocking on my door and there is not much time to waste.

Thank you Financexaminer. I will check out that section of the blog.

What if I drop the equity on the back end, simplify it, and make it a basic 3% finders fee agreement?

I am working with a real estate developer who is looking to raise capital on 21 x 2 family house purchase, gut/rehab and flip. I am in the process of raising funds for him, basically $260k money raise per property. The developer has an option on all of the properties and plans on building in stages (ie; 5 at a time).

I have a few investors who have expressed interest. What is the typical commission on a money raise of this type? I was considering 2% on the front end (2% of $260,000) and 1% on the back end (after the developer sells the property, which he thinks he will get about $400k for each).

Assuming I raise money for one contract ($260,000) and the house sells for $400k, I'd come out with $5,200 on the front end and $4,000 on the back end.

As you all can tell, I am a novice at this. What is the typical protocol on raising capital on projects of this sort? And what type of agreements should be in hand?

Financexaminer,

Thanks for the in depth reply.

If I were to look for potential investors, how would I structure this? Being that I am going to run the restaurant, I will have income from the business paying off the note.

I guess the first step before doing anything is to get a market analysis with comps from an appraiser? What about a survey on the property to see how it can be divided?

From what I gather, the whole thing would be structured as followed these would be the steps:

A private investor would hold a note with the MAIN LLC secured by the full property. Since conventional lending is out of the question (I own two cash businesses), I will need to sweeten the pot for potential investors on the property. I would than have the cottage behind the restaurant paying rent to the MAIN LLC as well as the RESTAURANT CORP paying rent to the MAIN LLC. Now, this is where it gets tricky.

When and if I sub-divide the two lots I am going to build the houses on, do I structure them in each's own LLC? The only reason I ask is because I plan on partnering with the builders and possibly the investors, splitting the profits when the houses sell.

In my mind, I have an idea of what needs to be done but getting it down on paper is a bit harder. I want to be able to pitch this to an investor willing to hold a 15-30 year mortgage..... does anybody think this is feasible?

Hello BP Community,

I am in the food business and have been for a while now. Being a successful restaurant/deli owner I am trying to increase my net worth and begin investing in real estate.

Here is the lowdown on a property I am looking at.

This property is on the market for 1.5m. It consists of four lots, three of which are empty and one that an very old, outdated restaurant sits on. It is in a beautiful town with much potential and these are pretty much the remaining lots to build on.

Here is my idea. I would like to purchase the full package, make an offer around 1.2m and see what happens. Even if I get the land + restaurant for 1.4m I think I can make this work. The only problem is I don't think I will be able to go to a bank to get conventional financing on a deal like this. I have to think creative, way outside the box.

Houses in the neighborhood go for somewhere b/w $500,000-$600,000. My idea is that right off the bat, I take two of the four lots (lets say lots #1 & #2), partner with a builder who pays costs to build the houses (+labor) and split the profit of the sale 50/50 of lots #1 & #2. Now, I would take the other two lots, turn one into a parking lot/outdoor dining area for the restaurant (lets call this lot #4) and keep the other one as the restaurant (lot #3). On lot #3 there is a small cottage behind the restaurant that I can collect about $1500 a month rent.

If I can get an investor to lend 1.5m (for purchase of the lots + buildout of the restaurant) does anybody think this will be worth it? I am looking for the investor to hold a note on the property, 100% secured by the property.

Any ideas or insights on how I could make this work or if anybody thinks it is worth it? Basically I would be getting the two lots (#3 & #4) for pretty cheap (as there is a rental cottage behind the restaurant on lot #3 to help pay the note off) and have a business to sell down the road.

How should I structure this? As for LLCs, should I LLC each individual lot + the business?

Not sure if all of this makes any sense, just looking for insight...

Hello everyone,

I am a newbie on this sight and fairly new to real estate investing.

With the dollar shrinking and the government spending at alarming rates, what does the future hold in real estate?

If our government does not stop this crazy spending, and cut the 12 trillion dollar deficit (it does not seem they are slowing down anytime soon) the dollar is going to be worthless and our country will be on the brink of bankruptcy.

Just looking for some thoughts on this in regards to real estate.