Hi Guys. I need some clarification on two things.. Private money and comps.
Private Money
As far as private money goes, I am a little confused on how you work out the ROI for the Investor. Once you find/get the deal, how are you guys presenting the numbers and what terms are you agreeing to? For my first BRRRR I am planning on either using a HELOC or private money, but I can't wrap my head around the ROI for the investor if I go that route in which I will eventually have to. Let me give you an example. Say I find a deal in which I will have to be all in for around $200,000 (I'm in Southern California and that's on the lower end). Once I find my investor, I would most likely be using the PDF that the BP calculator generates to present to him/her. Now, the way I see it is you will obviously have to show him/her the monthly cash flow, cash on cash, equity, and the analysis over time so they can see that it is a good investment, but this is where I have a trouble understanding the perspective of the investor. So far all I've heard and understand is that people usually treat the investor like a bank when the ask for money, meaning you come up with an interest on the loan amount. So, If I were to agree to say 6% on the $200,000 what terms are you guys agreeing to? is the 6% interest on how long you borrow them money? is it for the full $200k no matter if its 4,6,8 or 12 months? Also, if I was the investor and you came to me with this deal and I saw that you are going to be getting $300+ dollars every month and watching the appreciation on the house go up over time, I would feel like I would want a better ROI than just 6%, especially if you will be getting a negative ROI (When you pull more money out of a property than you put in. Meaning you cannot calculate a return on your investment because there is no money "invested" on my side).
Comps
I am also having some trouble feeling confident on my predictions for the ARV. I'm about to start reading The Book on Estimating Rehab Costs by J Scott to get a better understanding on things, but I wanted to see if you guys could share some of your strategies on how you figure out the Comps to come up with a solid ARV. So far the only method I am using is through Zillow. Once I find the property I will go to the map of the property and use the LOT LINES tab that is next to the ROAD and SATELLITE tab to see what the houses around the house I'm looking at have sold for. I am obviously looking for the same number of bedrooms, bathrooms, sqft and age, but I feel like my predictions are weak because I can't tell or find out what sort of "upgrades" the property might have. I will go off of the example above to paint a picture. Let's say I find a house that needs a bigger rehab. After negotiating the price we settle for $100,000 and the house will need around $80-95k in rehab, but let's say we are all in at $200k to be a little conservative. Then I will go look at the comps through Zillow and see that the houses in similar size, bedroom, and bathrooms have sold anywhere from $230k to $270k and then there are some that are a little crazy and go over $300k for reason besides being a little bigger in size that I do not know. Now for those of you that don't have an idea of the California market some parts of California (probably most parts) will sell houses around market value or above market value even tho the house looks and is outdated. So I am having a hard time justing that the ARV could be $30-40K more after I would upgrade major if not most parts of the house after spending $80-$95k.I know I could just ask agents that I am friends with to pull the comps but I would like to know a solid way to figure out the ARV for myself as well. Does that sound about right or am I totally off?
If you guys could share some of your stories/methods I would greatly appreciate it.
