All Forum Posts by: Michael Dorgan

This one is easy for me. Don't do partnerships with people who don't know really, really well and don't get over-extended. Don't even get close to being over-extended. It's hell on you personally and even worse on your family.

I was in the process of doing a Major rehab on a 3000 sqft house (down to the studs in the basement, jacking the attached garage up and redoing it's failing foundation, new Everything upstairs, etc.) and came across a really good looking wholesale deal from a 'new' investor that I just couldn't pass up. Hell it was Sub2 with the current owner taking a huge 2nd at 5%. I only needed 20k to control a 350k ARV house. Looking at a 100k in profit. Sweet! This investor insisted on partnering with me on this deal so she could 'see how it was done.' I was a lamb to the slaughter. I didn't have 2 crews to fix houses so she offered to maange the fixing for me. Even better. It was mostly a cosmetic fixer - new paint, carpets, new bathroom, polish floors, some landscaping. Easy. 3 months later and lots excuses, the only thing that was done was some half-*** painting and 1 door replaced. Worse, she had moved in her brother and his pitbull who had proceeded to crap all over the house. And the kicker? I'm in a legally binding partnership with no real operating agreement. To legally disolve this, it would have cost me many 10s of thousands. Yikes. Then some good news. The original seller/note holder has decided he wants his money now and is willing to take 30k less than owed to get out of the agreement.

So now, I'm paying double mortgages, have 1 crew to fix 2 houses, and a partner who can legally do nothing and make a ton and need to refinance the house to get the note holder his money for the discount. Oh crap.

Solution, I paid off the partner with the note profit to get her to sign the house back to me alone. I refi to get the note holder his money and I am now free of the freeloader. Unfortunately, I need to fix 2 houses with 1 crew and I choose a poor solution: Have the crew work each house 50%. Dumb. It meant that both houses took way longer than they should have to get fixed and it meant paying a lot more in holding costs. At this point, me reserves are dry, and my LOCs are full. I need to get one of these houses sold NOW or start missing payments. Do yourself a favor, don't ever get this far in the hole. I couldn't sleep, eat, and barely functioned at my job. Thank god, one of thouse sold in 2 days (due to some somewhat aggresive pricing.) and the other sold a month later allowing to clear my LOCS and bank a little money.

Moral? Reserves are key. Partnerships are a closer binding agreement than marriage. Keep both in mind when investing.

Oh and the kicker on that parter? I found out later she had been scamming people for years and I got off pretty lucky. She took some poor soul in Tx for over 150k and skipped town before anyone could find her.

I'm a somewhat experienced investor who's been at it part time for 4 years or so. I've dabble in almost every area as opportunities arise. My first deal was a pre-foreclosure that I did pretty well on, though it required a TON of work. I've bought an REO to flip, done a few lease options (no one bought and I sold for break even after costs), and bought from a wholesaler to flip. I've also got a rental that is cashflowing nicely I bought from a couple who wanted to move NOW and gave me a decent discount a few years back. Lately, I've been doing mostly Lonnie Deals (Mobile Homes in parks) and have enjoyed the cashflow they provide. I've attended auctions, but the prices were not realistic at the time so no buying occured. I've even bought and flipped a couple houses in San Antonio through a wholesaler I knew up here who moved down that way.

Anyways, here I am on a new board looking to meet a few new people and learn a lot of new things.

Here's what can go wrong:
1. You are responsible for lot-rent until the place sells or unless you've got a very desperate park owner. This can Kill your profits if you don't take it into account. My first 'deal' was in a senior park (dumb) and I bought a single for $500. It took me 1 year (at 450 a month) to sell the thing after I spent 1k and numerous weekends fixing it up a bit. I sold for 3k cash as all my buyers were not interested in financing. Oops.

2, If you get over-anxious, you will over pay. It's very easy to rationalize your profits away and work for free. Around here, older DW sell for 25-40k retail. If you can get a place for 20k, you've still got plenty of room for profit right? Lol. I did that and managed a 18% yield on that note. Bought for 18, 2 to fix, 3 to hold, sold for 30k with 3k down at 12%. It's going to take a few years to get my original down payment back there all because I was impatient and failed to negotiate.

3. People don't pay sometimes. When this happens, yes it's not an eviction, but it isn't the cheapest thing in the world to ge the paperwork together for a repo. Luckily, I've not had to do this yet due to a small move out bribe.

4. You HAVE TO be a people person. This is all about shaking hands and listening to stob stories in order to get a decent price. If talking with people and wheeling and dealing isn't your thing, then don't bother.

5. Fires. If your buyer fails to have decent insurance and something BAD happens, you are out your investment as the people who bought it are pretty much judgement proof.

Also to the person who talked about people trashing the place. Yep, that can happen. But, they own they own the place and tend to (thus far) take pretty good care of it. If you were forced to repo a trashed place, it could cost you a little to clear the crap out, but then you just resell WAY cheap and get someone willing to fix the place for you. If it's beyond that, you've lost some money.

Why do it? My best deal thus far is a 82 DW in good condition I bought for 4k and resold in 1 month for 24k with 2.5k down at 12%. I'll have my money back out in around 6 months and will collect a nice payment for years. I've now got around 1.5 a month coming in passively - just xfer the money from one bank account to another from their auto-pays. That's real nice.