All Forum Posts by: Kevin Scott

@Julian Buick   ya its definitely something to at least think about.  I personally take the approach of separating both sides of any business I am involved in.  Investing is the passive side where you should be evaluating how to use your money and maximizing roi, depending on risk tolerance of course.  The money is working for you.    Then there is the active side where you are working/managing etc.  In this case you should be paying yourself for the work done as if you hiring it out.  Both always have a cost associated with them.   

When someone says they will use their own money or do the physical work themselves to save they really aren't saving they are making an equal trade where there is 0 gain.   That doesn't mean they should or shouldn't.  

 If you have idle money above and beyond reserves use it in the businesses you believe in.  If you like to do the physical work and don't have a normal job do the physical work and hire someone to do the marketing or other parts you don't like. 

Side note your in Kirkland?  Do you attend any rei meetups etc.  in Washington.  What are your favorites

Rules of thumb are what they are just rules get help you sort through the junk.  As @Kory Thaut and @Larry Turowski mentioned there are a bunch of other factors.  I replied to a similar post here

with a fairly detailed explanation of my opinion.  It's a great method and I believe most deals are in that range but it is just a rule of thumb.

At 86% your talking about 4% left without including carrying costs. Your seller costs are 8-10% so after removing those your doing a deal to make 4%? Its so easy to go over budget by 4% that you can easily lose money on 86% ARV. So I guess Im arguing with that one sort of.

The only way Id ever go as high as even 80% as if it failed it would still cash flow with debt to it as a rental.

The 70% rule is a very good way to analyze any flip deal because its based on percentages.  It is however a rule of thumb and you should clearly go into more depth but if its way above that then its not worth looking at.  

What it actually does is gives you 10 percent for seller closing costs 10 percent for holding costs points and fluff and 10 percent for profit not 20 percent for profit.  That last 10 percent gets dwindled down quite a bit.  You can adjust those a little but going under 8 percent for closing costs is not a good idea.  If your the realtor you might consider it but thats just trading investing for working.  You might as well just focus on listing other peoples properties if your going to substitute prophet for labor.

The same goes for using your own money.  You really should be counting your holding costs as if you are using all other peoples money at the normal rate you would get.  I hear this all the time from other investors in my area. When I say I often use hard money they might say something like"I use my own so I can pay more" I shake my head and see someone who is trying to work themselves to financial freedom.  Im not saying you shouldn't use your money in a business that you believe in but to not account for it in your numbers as if it was loaned to you is the same as doing the work yourself but not paying for the labor.  Working for free.   With money you can just loan it out and get those returns without doing the flip so why wouldn't you account for your idle money.  

Heres an example of what I mean.  I just lost about 5000 to 6000 because of Idle money.  In this situation I "verbally" agreed to buy from a wholesaler in Washington.  (Yes Verbal so I know where I went wrong) We agreed on the phone late at night I said Ill take it and would meet to sign whatever worked best for him.  I was going to have a hard time later the next day so I said if needed I can tonight or possible early in the morning , he claimed would have a tough time early but it would be fine even if he had to wait.  (Thought I was building a new relationship here)  So how did I lose money you wonder.

 I  currently have quite a bit of idle money sitting around these days as the deals are fewer between so I recently invested some in another business I own.  That being said I kept enough to pay all cash for at least one house and mix the rest with hard money for a couple more or simply use a mix to do several.  As soon as We agreed to do the deal I emailed my hard money lender to do another  deal Im closing on tomorrow.  I did this instead of using my own money which when used on my own project would be earning me what the hard money lender would be charging.  In this case I get charged 12% and 2 points.  "Thats the money I lost."  I would have paid all cash on the deal I am closing on (I could cancel the loan but I told the lender Id use them and I don't like to go back on it).

Now I still have idle money and am paying points and interest on a deal when I thought Id have more of the money in play and more deals.  Now if I happen to get a good deal right away it helps to ease that loss but it is a little tougher right now so I was pretty bothered by it.  There is more to the story but the point is to show that you should still value the money in a deal even if its yours.

This doesn't mean you shouldn't use your own money or do the work yourself but not accounting for what you would have paid in both situations is creating a job not an investment.  

@Dave J.

Ya, I just thought Id see what you thought on the verbage. To me it seems to intentionally leave open the ability to wholesale or even assign.  I pretty much agree with your interpretation on options and unconditional contracts, Id like to add one more thing for people to take into consideration.  All conditional contracts (real estate related terms) do become unconditional contracts at the point when the conditions are met.  Just food for thought.  IF you decided to make an unconditional contract and assign it (Im not advocating this and Im also not saying not to do this), depending on whether they assigned before or after the conditions were met might or might not be ok, for instance a 7 day inspection period is something that I could see being ok at least I could honestly argue that is how the law read to me.   Your honor it definitely passed the inspection phase and I wanted to buy it but my financing fell through or was at a crazy high 12 percent.  I assigned the contract after it became unconditional because I didn't have a better choice other than losing my earnest money.  The seller still didn't want the house so an investor I know bought my contract.

And to reiterate what you said, intent is usually the end all, if it comes to court on something like that.

I want to make it clear to the others on this thread that Im pointing out "possible" loopholes not to be shady, I don't live in either state and I very rarely wholesale so no ties here.  I just feel typically in many situations the verbage is done that way for a reason, to allow someone to avoid a bad situation. 

The scenario above makes perfect sense to me.  If it was in the conditional phase or just an option with 10 bucks down the judge might say you should have just let your contract expire then and got your money back, or for the non option contract you should have canceled as per your conditions were not met and got your money back.

One more minor thing. I am not on any side here. If the law came to say that a license was needed for it I'd get one (I rarely wholesale anyways), but it doesn't. It would be odd if it did. That would be encouraging fraud or conflicts of interest exactly what NAR wants to avoid. Yes they want to protect their interest but if any of the two (wholesaling properties with a license or without) should be illegal its wholesaling with a license. I don't think either should be illegal just saying if one was to be.

It seems way less ethical for someone that is in the business of listing properties and trying to get their clients best interest, typically the highest price or the quickest sale or both to say I can buy your house etc etc.  Then they go sell their contract to a buyer they know before getting the contract, is going to buy it.   That is the type of stuff wall street crooks go to jail for,  it has a subtle similarity to insider trading.  Im not claiming they are the same and really think neither should be disallowed but if one was more unethical than the other it would be a licensed realtor proposing to buy the house.

If you want to be a realtor offer to sell their house for your commission.  Or if you want to buy it you really need to add value by rehabbing or whatever.  

Again I don't see anything wrong with either they both help sellers in need.

@Dave J.  Just curious, what is your take on this line  

however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return

What is your opinion of that excerpt in short and in its entire context?

The above is for Dave J.s post on Florida not Ohio just to keep it clear between the two.

@Darrin Carey    and @Account Closed

Im glad you two have been chiming in here and the other similar thread.  Even though the brokers here continuously keep posting the same incorrect or misleading information.  I get they probably view wholealers as competition but really they usually get the final listing anyways which is after fixed up by the end buyer and at a much higher price.  Some attorneys are even misinterpreting rules and guidelines etc. 

Where I'm located it isn't quite as hot a topic and many agents love working with wholesalers especially ones that are trying to become rehabbers. Of course many definitely  don't get it but they usually don't raise a fuss.

If you have doubts you can get your license or show intent.  If you are beginning and want to wholesale a property get a hold of a few hard money lenders and at some point in the deal have them give you a quote or something that shows you were seeking a possible loan.  Then when a better offer comes along take it and assign your contract.  (not legal advice just :) )

No one will have an issue if you wholesale the deal at that point or at least shouldn't.  Of course if something goes to court you can never be sure until the ruling but if you keep the records and show that you had intent to close.  So what if the fees were too high and you had a better offer.

Why did you get it under contract if you weren't sure you can close.  Well most private money won't look at the deal if you don't have a contract so you don't know if you can do the deal until its under contract.  Sell your contract if you don't like the numbers they show you.

When you are able to get a great loan at a great rate, and you have enough money in the bank from your assigments consider doing more.  

To clarify it most likely will go through if it hasn't been signed in yet both the house and senate had 0 opposition and I think they signed.

It might still need to be signed by the governor but I can't see why it wouldn't with no one opposing it from either branch. 

I posted in a another area on this but Im pretty sure that the flipping law has been clarified to say that you only need to hire a GC.  I believe it was voted in with 100 percent of the votes and signed this month.