All Forum Posts by: Eric M.

They need to give grants not loans

Whether we are in a "recession" now or will be is really not the most important point. The thing is not all recessions are the same and this recession won't be the same for all places. So even if you could confidently say, we will be in a recession for 8 months.....it doesn't tell you anything you really need to know.

There are recessions with high unemployment and recessions with low unemployment. They are COMPLETELY different. There are recessions where interest rate are dropping as they try to get things going and recessions with interest rates rising as they try to cool things off. And other variables that all make REI VERY VERY different. So just saying recession is not enough info.

This is a recession with very very low unemployment and rapidly rising interest rates coming off a period with a shortage in housing. There have not been too many of these to compare to so it is very hard to say how things are going to react. But it is pretty certain they won't react like a typical "recession".

In other words, even if you know we are in a recession, it is not very clear how REI in your area will be impacted. I find it very difficult and an uncomfortable spot.

Sure it is quite normal to do a 50/50 JV with one partner putting up all the money. I have done several of those as the money guy. I am certainly not "silent" though. Depends on how much I am needed. If the other partner is competent, I am more than happy to let him do his thing and be pretty darn silent. If I see something that concerns me, I am not going to be silent. I will speak up and protect my money.

To be bluntly honest, it would be a red flag for me that you have not built up and investment funds after 30 yrs as a GC. I know **** happens but it would make me question your business skills and dig deeper. Just being honest. My experience with GC's is they often just cannot manage money/costs. In a JV you need to be very transparent and thorough about documenting your costs so you can get an accurate "profit" number for the split. I have had several situations where I have caught my JV partner (sometimes a GC, sometimes not) sliding in extra expenses from his other jobs or even personal home into our project. To me that is a deal breaker. It is like cheating on a spouse. No trust after that and I am done. If you have an out of state partner it is even more important. If you are willing to be honest and transparent and competent with the budget, you should not have any issues.

Truly your best bet is to find a deal and post the specific numbers and what you are looking for...or take the deal to a local REI meeting and pitch it. If it the deal is legit, you will get lots of interest. Do a few JV's and build some cash and then look for better lenders. Also if you have ANY money to contribute that would help make a partner more comfortable on the initial deals. Doesn't have to be 20% or even 10%. But just putting SOME skin in the game tells us you are less likely to start the project, discover you are in over your head or it won't be profitable and ghost us....which happens a hell of a lot.

 I don't know exactly what you mean when you say "help you with your first deal" but please don't be under the impression they are experts or will "help you". They aren't and they won't and you shouldn't expect them to. It is not their job. If you mean find you a deal. Then ok, mayyyyybe. 

I have been looking at wholesaler deals for a decade. I have closed 1 deal from a wholesaler. I can count on one hand the ones I wish I had bought. The promise of wholesalers is far far greater than the reality. You simply can never believe their numbers. 

To the 1 in 100 truly professional wholesalers, I apologize if you feel offended, but you guys know what I am saying is true.

First, in the situation you are in you are not going to find a "lender" of much repute to lend you all of the money when you have zero experience. IMO, we are in the very most difficult time of the cycle to flip. The beginning of the price decline with rates in flux. Most sellers are still of the mindset that they don't want to cut price and the market is going to be very different by the time you are done with your rehab so any ARV you think is solid now, likely won't be correct. 95% of flippers have never flipped in a declining market. It is tricky. Any lender giving 100% to a newbie right now is at great risk.

You need to find a partner for a JV and give them roughly half the profits for putting up the cash...at least for your first deal and probably for a few.

Unless they personally know you or your skills (all you have currently), no one is going to just commit to funding anything blindly (before you have found a deal). I would need to see some evidence that you can locate a true deal. Most can't. It is quite hard. Right now, harder and easier to be fooled. The initial price declines are making lots of deals LOOK good because you are using ARV's from when it was a sellers market. The comps have not yet caught up with the market and they are still moving. Rising prices are reflected quickly and obviously in comps...price declines take longer and are harder to discern.

Ideally you should find the deal, then find the partner, then make the offer.  In todays market you don't need to move that fast so this should be doable. Of course, there are many more details to it but I don't see you finding a decent partner as a newbie unless you can demonstrate you have a solid deal.

In all my years, I have never understood he percentage of ARV target. I have purchased light rehabs at 85% ARV and made good money and I have purchased heavy rehabs at 30% of ARV and made money. I have seen lots of 70% of ARV or even 50% of ARV money losers because the rehab was too heavy. I looked at 1 house that was literally 15% of ARV and I said no because the whole thing had to be rebuilt.

% of ARV simply doesn't tell the story. Depends on the rehab cost.

These can be very tricky to value but if it is listed, find yourself the best realtor in the area and let them represent you in the purchase and they will advise you on selling options too....hoping to get the listing. 

Monica,

I like the way you are thinking about this. Lots of people think just basic 50/50 agreement and everything will work out. But it often doesn't.

Cost over runs and changing scope of the rehab are big issues and come up all the time. Simply breaking a tie on the "vote" when you don't agree on something is a big problem for 50/50. I am the money person on my deals and I much prefer 55/45 splits (or even 51/49). I generally treat the partnership as 50/50 on a day to day basis but at the end of the day it is my money and I want to be able to have the final say on disagreements. Having it be 55/45 solves a whole lot of issues very easily even if you haven't put everything in the operating agreement. Of course, it may seem "easy" for me since I am the 55. The 45 guy might not think it is so easy but I try to be as fair as possible. Just sometimes you need a tie breaker to move forward and with 2 people someone is always going to be the "loser".

One over looked issue is making sure you are on the same page for exiting the property. It is very common for people to change their mind by the end of a rehab. The market has shifted, or their finances have shifted. Sometimes you plan to rent but the market is hot and you want to flip. Or the market for a flip has cooled and you want to rent. Lots of things can change. I even had one deal where my partner had gotten their RE license mid flip and wanted the commission for himself. Which I let him have but knowing that in advance would have changed my approach to the project.

If you are 50/50, you need to foresee these issues in the operating agreement and hopefully have a mechanism for deciding on them. "Stalemates" are not good for business or partner relationships.

Good luck.

Well, you are not going to impress a single partner/lender with deals sourced on zillow. Running numbers that you find on zillow are not actually finding or vetting real deals. I am talking about identifying SPECIFIC available properties (likely off market) and inspecting them and getting solid renovation estimates and coming up with comp ARV's and the actually pitching that deal to a partner. Something with some research and real numbers behind it that is actually available. THAT is what will get an investor to move.

Just telling people you will find deals if they have the capital means absolutely nothing. You have to have the goods. You have to demonstrate that you can find an actual deal. It is MUCH harder than you think and most cannot do it.

If you have found a REAL deal, post the details. If it is truly a deal, I promise you will find capital. I will look at it and lots of others will too.