All Forum Posts by: Mark Allen

I'm an accredited investor and am interested in parking $100K or so in a large and well managed senior housing fund.  Would appreciate hearing from anyone who has done same.  Thanks!

Hey Doug PM funding 100% of the deal including rehab, hence the infinite ROI

I had a discussion yesterday w/ a guy using 100% private money @ 6% and splitting profits 50/50 w/ the lender. He thinks this is a great deal and that 70% LTV hard money at 2 points and 12% interest is a rip off. I tried to convince him otherwise. My argument to him is below ... please feel free to poke holes in it if you're so inclined!

I agree that private money with no points is ideal, esp if you can get PM to do 100%. But your idea of splitting the profit w/ PM lender suddenly makes it much less interesting to me. (Would only seem interesting if no personal cash available in which case sure, better than no deal at all.)

Again, correct me if I'm missing something but this is how it looks to me.

To use real easy numbers let's say all in @ $100K w/ net profit of $25K (counting all costs except financing) and (too be conservative) a 6-month holding period. And let's say that holding costs unrelated to financing = $500/mo and that's already worked into our 6-month numbers.  So here goes:

HML

$25K net excluding cost of $70K loan

- $1,400 points

- $4,200 interest

= $19,400 profit.  

On a $30K investment = 170% annualized ROI.  Every month of speed adds another $1,200 profit so 3 month turnaround = $23,000 profit = 211% ROI 

PM Partnership

$25K net excluding cost of $100K loan

- $0 point

- $3K interest

= $22K shared profit

divided by 2 = $11K profit 

ROI is of course infinite here but does that really mean anything if you're already sitting on $30K plus?   

Speed has less impact in this case:  3 months = $12,500 profit

So looks to me like that partnership money is 76% more expensive than HM on a 6-month flip, and 84% more on a 3-month.  Right?

Ah sorry Denise read too fast first time; just noticed your "moving plans" comment.  I was assuming this was a straight investment but now see you intend to occupy that unit.  Sorry you're in this pickle, I don't see any quick and easy solution that will keep your planned move date.  Cash for keys worth a try? 

I agree with Charlie, if you really want to close on this soon having a lawyer hold funds in escrow until the tenant leaves (and leaves the place in good shape) is probably your best option.  "Breach of contract" is overstating the case here I think.  Things happen, and like I said it sounds like the sellers overpromised in the first place -- likely not knowing they had.  Best to work with them amicably if you can and come up with a win/win.  They will have to agree to this escrow concept and probably will not unless they feel it's a good solution for their problem which is of course your problem too.  A combative approach is not likely to end well for anybody.

Sounds to me like the sellers might have unwittingly overpromised when they signed your P&S on June 5. Assuming the tenants are on a month-to-month lease payable on the first of every month, according to NH law they'd need a full rental period of notice to vacate -- i.e. even if the sellers gave tenants notice right away on June 6 (personally I'd wait @ least until the inspections were cleared) the earliest they could have demanded the tenants to vacate would have been the July 31. And if they waited until July 1 to give tenants notice they'd now be looking @ Aug 31

Aaron I believe his work is expensive primarily b/c his skilled labor costs are high, not because he's making a fat margin.  In fact I believe his margins are pretty lean.  Do you know this to be untrue?

Manolo and Aaron I think you both misunderstand what I'm trying to do here.  I'm not interested in hiring a GC and beating him up on price.  I'm trying to bring a GC an opportunity to do something he would not do on his own so that both of us can benefit.  He'd need to run his own numbers to tell me if this is true but my assumption and belief was that getting half the profit on a good flip will net him a larger margin on his efforts than he's normally getting on projects in which he has no vested interest, and for which he went through a competitive bidding process.  

Hi J and Aaron thanks for taking the time to reply!  

Aaron I was talking about designing a true partnership where interests are aligned -- i.e. both of us profiting more by keeping costs low and speed fast.  I do see the potential conflict of interests here which is why I posted this.  One thought I had is he's compensated very close to true cost, with almost no margin, on the rehab labor -- and only compensated @ closing.  So he's fronting his payroll expense while I'm fronting other expenses on my own, and both of us splitting some others 50/50.

J. Why would I want to partner in the first place?  For one thing it would be nice early in the game (i.e. before acquisition) to have his expert head in the game.  And also b/c I'm seeking synergy.  Managing contractors is my weakest link.  I don't enjoy it, and am not great at it.  I trust this guy and know he runs a tight ship.  He's strong where I am weak.  And why wouldn't I just hire him?  Primarily because he probably wouldn't take the work in the first place and would be expensive if he did.  Although he's fully capable of doing house rehabs (and has in the past) it's not his current niche.   But I believe he'd be have a passion for flipping if someone else were taking care of virtually everything except for the GC part of the equation.  

Both of you seem to be saying bad idea in the first place and maybe you're right.  Thanks again!

Mark

I've got a good long-standing relationship w/ a guy who owns a commercial construction company.   He's got a diverse and skilled staff on his payroll,  and I know they've got the ability to do any sort of work that might be required.

Without any particular deal in mind I'd like to approach him about partnering on future flips that require significant work.  My question is how do I align our interests?  Especially re: coming in @ or under budget and on schedule?

I've only flipped on my own in the past, never with any sort of partner, so would appreciate any more general partnership guidelines that might help.  

And in the particular case would love to hear some ideas how I can prevent conflict and keep us both on the same team.  Thank you!