All Forum Posts by: John Ross Valderama

@Amy Hua It all depends on your strategy and appetite for risk. My first property I purchased using OPM. If you make money on your first flip then be happy for the education and experience. I would say most people's first project takes around 6 months.. but this all depends. Just remember if you don't have any dates and numbers set, then it is likely you will never make the leap!

Ethan, can you explain your process when using OPM. I'm in the same boat, I have a friend who is willing to invest with me. Did you form an LLC before doing that first flip?

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Originally posted by @Chris Connery:

@John Ross Valderama

I hope for your “partners” sake that he has a great lawyer to guide him through this.

From what you described, unless your plan is to royalty screw him over, you guys should form a partnership.

I’m not sure where to start exactly. Your first lien holder bank will definitely want to know why this person is lending you down payment money and what their interest is in the property.

You really need to consult an attorney and have this done correctly. Not the type of agreement you make on a wink and a handshake.

No worries. I'm learning this from phase 0. I'm just taking what I've learned from what I was reading and putting it into practice. I told my buddy I'm trying to get into real estate investing and he said that he would be interested too. He doesn't have the time so he would leave it to me. Kind of like the same circumstance in the book, so I did the same thing and said we'd split it 50/50, honestly if he wanted more I'd do it. A small piece of the pie is better than none.

From what everyone is saying is to form a partnership, I'm going to look that up and figure out where to go from there.

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I will look into an LLC. I probably missed that in the book somewhere.

So then I'm guessing I should hold off on finding deals until the LLC is formed.

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I guess it's not a partnership. He's going to be a private lender. He's going to put down the deposit and that's it. I'll be handling everything. In exchange he's going to take 50% rental profits and 50% of what we get during the refinance.

What will we need to do to proceed from here?

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Hello BP, I read the book Investing in Real Estate With No and Low Money Down by @Brandon Turner and I found a partner that is going to put the down payment. Where do I go from there? Does he wire me the money or do we go through a third party?

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Welcome to BP Ignacio! I too was looking in the Philly area to invest in as it's hard to find deals in California. I wish you the best in your endeavors!

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Originally posted by @Chris Dawson:

@John Ross Valderama these numbers seem very tight. You are only looking at 10% equity and that's if everything goes according to plan (which it rarely does). You are going to have a hard time refinancing, unless you plan on putting more money down. How sure are you about the rehab costs and the ARV?

If you are going to use hard money, make sure you use a company that can also secure the refinance loan. This will insure that the numbers you have on paper will allow for a refinance loan that meets your needs.....BEFORE you purchase the property and potentially get stuck with a high interest loan that you can't refinance.

I have an updated sheet. I was still learning to use the calculator, but I think these numbers looks a lot better. View Report. If you could review this, that would be great!

I will be doing a walk through of the house tomorrow, so I can get a better understanding of what needs to be fixed and fix the rehab costs accordingly and also the purchase price. I've also found another property in the next city over that I want to look into.

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@Chris Dawson, yes I was planning on using the 203K loan because I don't have the cash to make the repairs. I was planning on living in the property while I made the repairs and rented out the other rooms. Essentially I was thinking about house hacking with a 203K loan. And yes you are right, it is a seller's market in my area.

I talked to a real estate agent today and the 203K loan will not be feasible because the property is cash only. I am looking at hard money lenders to fund the project. Here is the link to the deal click me. This is based on the hard money loan from LendingOne and I plan on refinancing to a 30 year mortgage to get a lower interest rate.

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Originally posted by @Matthew Porcaro:

Originally posted by @John Ross Valderama:

Originally posted by @Chris Mason:

Originally posted by @John Ross Valderama:

Originally posted by @Chris Mason:

Originally posted by @John Ross Valderama:

Originally posted by @Chris Mason:

Originally posted by @John Ross Valderama:

Hello,

I decided to stop listening to podcasts and get off my rear to start getting my feet wet. I am thinking about doing the FHA 203K loan for a fixer upper. Since it's an FHA loan would I know that I need to live in the house, so if that is the case would it be possible to rent out the remaining rooms?

Yes and yes.

The bigger challenge is getting an FHA 203k offer accepted to begin with. Without that, nothing else matters.

Listing agents' eyes gloss over when they see a 203k offer and they start talking about the "HGTV Effect." When the term "203k" is mentioned in any real estate office, stories start to pop out about the buyer who estimated that $150k of reno would cost $40k, which killed the deal and screwed that listing agent's client. These listing agents, of course, are advising their clients on which offer to take, and which to throw in the trash without even countering.

The real question is: what are you doing to overcome that?

From what you're saying if I can get my numbers down within a reasonable ballpark I would avoid both problems. I would just need to contact a contractor for a side by side walkthrough and get estimates on what needs to be fixed. After words it would be calling local business to see the costs of parts and labor.

Or did I just over simplify that?

I don't think you oversimplified, but I also don't think you're aiming for the right target.

Focus on getting the offer accepted. Zoom in like a laser-beam on that. If that doesn't happen, nothing else matters.

I talk about FHA 203k at work probably about 100 times a year - twice a week.

I see a ratified (seller signed) purchase contract w/ FHA 203k in mind about 5 times a year.

The investor's reno budget estimates weren't garbage, and we actually close one, about once or twice a year.

What are you doing to make you one of those 5 in a hundred? We will get to making you one of those 2 out of 5, but first you need to be one of those 5 in a hundred before that is even relevant.

If you were in my shoes with a FHA 203k loan what steps would you take to improve the chances of having the offer go through?

Your profile says that you're interested in wholesaling. Minus the whole "I can't afford this property and I can't close and I'm not in a position to close and I'm probably lying to you," try the wholesaling marketing stuff that you like. Again, minus the actual wholesaling aspect. The marketing stuff is on point, it's simply the "ability to actually deliver" that screws up wholesalers. Incidentally, this marketing stuff is how most real estate agents drum up listings (they also can't actually close on & buy the home, most of the time, which in their cases is fine since that is not what they are selling).

A seller signed fully ratified purchase contract crossed my desk this week. The appraisal will come in at least a quarter million dollars above the contract price. This buyer wasn't focused on the financing, he was focused on getting the offer accepted for the best price possible.

I should probably change that. Wholesaling is what got me interested in REI, but doing my research I found that isn't the best method for me, I would like to try it in the future.

I will be focusing on rental properties using the BRRRR strategy. I want to use the FHA 203K loan to finance my first rental property, live in it for a bit while fixing it up and renting out the remaining rooms while I build equity in the property and in 6 months I want to refinance pay back the FHA loan and use what I got to invest in a second rental(I will still be living in the first rental, which is the one we're talking about).

With your advice I would first need to focus on getting the deal accepted. From what you're saying a FHA 203K loan is extremely hard to get accepted by a seller.

I would't say it's "extremely hard". I'd focus on Fannie Mae Homepath properties if possible. When the federal govt is involved, it seems like they're more privy to accepting offers, as to show that they practice in participating in their own stimulus plans (203k being a first time buyer incentive program)

My 203k offer got accepted no problem. I offered a little below asking, with my preapproval letter, and the paperwork got started immediately.

The challenge for me was everything after that offer was accepted. The paperwork is tedious, long-winded, repetitive, and downright frustrating. You need to look exceptional on paper (ample savings account, w2 employee, etc).

As the other poster said, construction costs are often wrongly calculated. While that's pretty much the nature of all flips, in this case you're at the mercy of what the bank approves you for. Anything above and beyond that is sometimes added with a holdback, but it will increase your monthly payment, and slow down the project.

Start sifting around and putting some offers out there. All of this is irrelevant until you have a pre-approval letter in hand and start offering on foreclosures.

Thanks Matthew, I appreciate you sharing your experience. I am shopping around for loans today to see what I can get.