All Forum Posts by: John Ching

Coco,

Personally, I like to cash out my rental properties and use the money for future ventures. I also like finding tenant-buyers for the property and make them responsible for all maintenance and property taxes. Tenant-buyers tend to take better care of homes since their goal is to be eligible to purchase.

Put up some, "For Sale, No Bank Qualifying", or, "Rent-To-Own, Home For Sale" signs and you will be flooded with calls. Feel free to PM me for more info.

Welcome, Coco. I am in Springfield, which is about 65 minutes east of you. I would think your investments homes in both FL and Houston would be doing well. We have an active REIA group here in Springfield if you ever want to make the drive. We meet once/month.

Hi Linda,

What are your rehab estimates? What are your comps? What is the median sales price in your area? Is the property near a, "war zone"? Does the property suffer from an obsolete floor plan? These are some of the questions you must have answers to before jumping into a flip.

A good rule of thumb for flips is the 70% rule that many BP'ers follow. That is to say, take 70% of your ARV ($195k), back out your holding costs and rehab, and what is left is your profit.

Only you can look at that number and say, "that is/is not a good deal".

Anyhow, let's use your projected ARV of $195,000.

Take 94% of that since you need to account for sales commissions (yes, I know you are a realtor, so there will probably be additional profit for you!). Thus, you have a starting point of $183,300. Now, take 70% of that number, which leaves you with $128,310.

As you can see, your purchase price of $139,000 is already too high to even use the 70% rule.

Looking at it another way: $183,300 (sales price-commission) - $139,000 (wholesale price) = $44,300 (split between profit/holding costs/rehab). This amount DOES NOT factor in HML costs! For HM, count on 4-5% origination (since it's your first time) of loan amount plus 12-15% interest rate. Can you see why you need to have your numbers down before you proceed?

I know you originally asked a HML question, but what I was seeing was a lack of hard numbers/information to go into your rehab. $40k profit is nothing to sneeze at, but that amount gets eaten up quickly by rehab & holding costs.

Hi Jessie. Some great advice being given here. 

Sounds like he's open to seller-financing, which is great. James G is spot on - start your first offer low. If you aren't embarrassed by your offer, you offered too much! Looks like he's got equity, but your comps are definitely scattered. You need a firm idea of what the market value is, as is (since you are saying it is pretty much, "rent ready").

Once you have your value or ARV, let him know you reserve your cash for deals you can pay pennies on the dollar. Then make your cash offer.

But find out if he's willing to take guaranteed monthly payments and you will handle all maintenance, property tax and insurance responsibilities as well. You can then make a more attractive (i.e. slightly higher) offer? After several years, you can give him a balloon payment for the balance.

There are a lot of ways to go with this one, but you need to get the property under contract first. Keep us informed.

Greeting from Springfield, MO! I've attended several training events in St. Louis and know the area is ripe with opportunities! Many deals to be had. 

Well, it sounds like bring a sound resource to the flipping table. That's a good thing! Now for the bad news (as your title states)...You're in Orange County, CA! That's a pricey area for sure. I worked in OC (Irvine, Orange, Tustin) from 2000-2007. 

I'm going to read between the lines and say that you want to flip houses in OC but do not have the financial resources to commit to such a huge undertaking (purch/rehab/holding costs, etc.?). Am I on the right track?

I would suggest seeking out the local RE investing clubs/meetings and attending their gatherings. Network and get to know active investors/flippers. (As a flipper myself, I am ALWAYS looking for a good contractor/project manager with good industry contacts.)

BP, Google search, LinkedIn and MeetUp are all good sources to find where investors meet. I'm sure someone would want to partner with you and show you how they find deals and fund their investing career in exchange for contracting services. 

Also, work on getting property leads. That's another strong asset to your arsenal. 

Wholeheartedly agree with you, Eric F. 

The, "weasel escape clauses" are not in my contracts, nor do I advocate their use.  For sake of brevity, I didn't go to a lengthy explanation but wanted to make the point of being honest and ethical when dealing with sellers and investors (cash buyers).

That being said, I think we can all recall doing our first deal and having the big cloud of uncertainty hanging over us.  I'm not sure where the OP is with regards to their investing career, but I wanted to reassure them that escape clauses do exist and should be used when the situation arises.

But to reinforce your point, wholesalers should not use escape clauses to back out of deals. It's not an honest or ethical way of doing business and it's not good for wholesalers or RE investors in general.

Mac, I've attended seminars from numerous well-versed, well-educated sources on the subject of wholesaling and spoken/worked with RE attorneys who write my wholesale contracts.

The easiest way I would describe wholesaling is this: You are not "selling" the property. You are simply assigning the rights (or contract)  to purchase said property (* footnote: David D, DVH, et al!). 

As I learned during my state licensing exam course, all real-estate contracts are assignable, unless otherwise-specified (either in writing or by local/state law). (I have not seen a NAR Sales Contract without wording to this effect)

Now, as previously pointed out, wholesaling boils down to not just what you say, but also how you say it.

For example, at no time should you ever tell the seller you are closing on the property without the means to actually do so (that is fraud). However, there is nothing wrong with backing out of a deal as long as you have your contingencies in place (loan provision, property/termite inspections, etc.)

Honesty is always the best policy. If you plan on assigning the contract, let them know upfront. A simple, "...after closer inspection, this property isn't necessarily my cup of tea. But I may have a colleague or two who would be interested, is it OK if I show it to them?"

As for "equitable interest", my contract usually spells out that I will be depositing $100 with a title company to open escrow. The contract also outlines who will be paying which expenses.

Some great advice here for you, Greg. Ken and James both make some very key points (imho).

If you are short on time, but long for knowledge, you need to bring something to the table to make yourself a valuable asset to your investor/mentor/partner.

Probably the best thing you can do to start is educate yourself on the different aspects of investing and start producing property leads. My reasoning is that leads are some of the best learning tools. A good mentor should want to work with someone who is already producing quality leads for them.

Is this property a good candidate for a flip or should I wholesale it? Is this property a good deal for a long-term hold? Can I make it a good deal by sticking a tenant-buyer in it? Why or why not?

The more properties you look at, the more opportunities open up.

Second what Carlos A has said. Your question is very broad. All things being equal, your options for doing deals should be the same and consistent throughout your RE investing career.

What is your investing foundation? Strength? Weaknesses? What are you lacking? There are basic questions that need to be answered before people can offer advice.