All Forum Posts by: Nick Reaves

Hello all. I'm in Denver, CO, it's a pretty crazy market here right now; prices going up, bidding wars, even distressed properties are selling easily. I want to start in wholesaling but feel like my local market will be hard , I'm sure there are plenty of experienced wholesalers who have already picked over the low hanging fruit, and I feel like it will be difficult to find deals, when even ignorant people know how hot our market is. Any advice on how a newbie with a very low budget could break into this market? Or should I consider wholesaling elsewhere? I know some of the big wholesalers in town are focused on other out-of-state markets. I would be willing to consider that but wondering how I get a good boots-on-the-ground person to be there in a non-local market to help? How much do I pay them? How do I find them? Also how do I research beforehand with a different market to find out if it is more viable for wholesaling than my current one? How do I research within a distant city, what spots are worth investing in or not? Any help or advice at all would be greatly appreciated, thanks in advance

@Sean OToole is Property Radar available for Colorado properties and lists? I briefly browsed your site from my phone and seems like it is just  available for 5 states, is that correct? If so do you see expansion to CO area ever?

I see both sides of the argument from @Bill Gulley and @Andrew Massaro , @Eric M. comment captures it well, and I know Bill really knows a lot, have seen many wise comments from him in a multitude of various threads. But I have to argue, having an experienced, proven, and solid buyers list, where you know a cash or HM buyer will pick it up quick is key, I know some pro wholesalers crushing it like that, but they have lots of experience and networking with rich investors. But probably best to avoid foreclosures, I'm not experienced enough to want to touch them, and also have heard some horror stories from some of my mentors in their early days. One where an owner came out with no shirt and a baseball bat, pissed as Hell and ready to go with a violent fight over someone even asking about buying his house (which he was very close to losing)..Another one where the residents being foreclosed on took off with; every single cabinet, appliances, all plumbing fixtures, light fixtures, HVAC systems, water heater, smashed the drywall to rip out all the copper wiring, took the breaker box, took out every interior door, ripped out all or the laminate flooring, stole the garage doors and motors, even dug out a bunch of plants and trees from the yard! and just trashed the place disgustingly - all within a week after the investor had just seen it in perfectly fine condition, he said it was the costliest real estate purchase mistake he's made in all of his investing... These can go horribly wrong and you need have the funds to be ready to deal with some potential BS and/or angry owners in denial.

To the OP @Prince Conley I have to say that not only is 70% ARV more of an actual deal for wholesaling, also you need to deduct out any repairs, which you cannot underestimate if you to develop a good business relationship with your wholesaling clients, learn from some GCs to get an idea of usual repair cost. Repairs need to do whatever it takes to get the property in good enough condition and upgraded enough, to match the comps you use to come up with your ARV, this is key - learn how to comp or else you won't be able to truly know enough to find real value. As for foreclosure notifications and getting lists, probably varies a bit by location, but here in Colorado they file a N.E.D. a Notice of Election and Demand, which starts the countdown to the county auction of the property. From there I am not sure of the time, I think 90-120 days. You can usually get lists from the county, or develop a relationship with title companies to get lists, or most Metro areas will have a website or software to access these, usually with the ability to also access MLS comps, again key to learning pricing ARV and viewing pictures of comps to see the level of rehab and upgrades. You cannot comp a super outdated 70s interior with a completely renovated and modernized property. Comps need to be within a close area (and neighborhoods need to be known, sometimes close but across a certain street can be a huge deal value wise, mileage or fractional mileage for comps varies by population density) similar number of beds and baths, and square feet, as well as condition/upgraded status. Also you need to learn to be able to spot other major issues; foundations, plumbing, electric, HVAC, if you don't know what you're doing you may miss something a cash investor will spot (or have their inspector notice) and want a big deduction on price or even back out completely. If you want to do foreclosure wholesaling you also need to know how to find out all of the liens on the property (often more than one) and how much each lien is for, which lien is foreclosing, and find out how much equity the owners have, that's important.

Like Bill said this can be a fine legal line with wholesaling foreclosures, and they are really not for the inexperienced.

@Bill S. I completely understand, I am working on rebuilding it. Nearly all of my bad credit is related to medical bills I have been unable to pay. I had a 725 credit score just two years ago, which has dropped a good bit due to multiple medical bill issues, most of which are in collections, one I have a judgement from. So I am dealing with all of that, thinking by 12 months I should be able to have most of that cleared up, but budgeting for more time in case it takes a bit longer. My current lack of savings mainly has to do with me finally working on paying these things down.

As to why would they be willing to do a owner financed deal with my poor credit? I do have an excellent rental history, always pay on the 1st or sooner, never any late issues, plus steady employment. Plus the down payment from me would offer them a decent chunk of cash now, and they could cash in quite a bit again, once I can refinance and I can buy out the loan 2-3 years later or so. If I default (which would not happen) they could foreclose on me, and have my down payment to cover some of those costs and float them along. Also owners are investors and have tons of deals going all of the time, I'm sure they would be happy to use my down payment funds for their other more pertinent projects.

As to the systems that may need attention, they are all fine for a while, will probably need work in 5-10 years, so I am not really too concerned there. 

So when I came across self directed IRAs it really intrigued me. I have a little bit of money in my IRA, but no real savings, and poor credit limiting my ability to get into the game without clearing that up a bit. I am working in property management, have a pretty decent grasp on how buy and hold investing works, but am not quite in a place to do so myself. Self directed IRA seemed like a good idea, but I feel like I need more in there to make it work, and investing through a SDIRA through financing seems like it can be disadvantageous, or at least incur other fees, such as UBTI or UBIT, which off set some potential upsides.

But my perspective on what to do with my IRA has changed.....

I was wondering if anyone knows about using a Roth IRA withdrawal for a First Time Homebuyer offsetting penalties, but if this would work for purchasing an owner financed deal?

I am trying to get my credit cleaned up, but have a little ways to go there, but I have a little over $9K in my IRA. Of that I have $6K of that as my own contributions, the rest is earnings, but I started it back in 2004, and have not contributed much in the last few years. I am thinking a decent portion of my earnings probably are over 5 years old (which seems to make a difference in avoiding the 10% early withdrawal penalty, as far as I understand it.)

I have an idea of getting a place that I currently rent purchased through owner financing, it would be fairly feasible considering the ownership and my professional relationship with them, managing other properties of theirs and seeing them sell off other properties to their tenants (not w/ owner financing, but pretty sure they would be open to it). To do an owner financing deal I think I would need to put down about 5%, so maybe $6K - $6.5K or so, as I would be looking to offer around $120K - $130K purchase price, which is reasonable for this property. The property is funky old place, it is not the best, but fine for now, I would need to start planning for some potential pricier repairs in next 5 years or so with some of the major parts of the house (foundation, electrical is surely outdated, would want to someday install better HVAC instead of the boiler and no A/C setup it has, possible plumbing issues, roof will need attention w/in 5-10 years, etc). It would be a decent flip, but it really makes sense to keep it as my residence for a while, then as a rental. It would make an excellent rental, is very close to a couple of university campuses, is very close to the Denver Convention Center, and in general to downtown Denver. Seems like it will continue to appreciate well just for location, land value, and proximity to downtown. Houses in the area, especially a block or so away have some great comps, and lots of development/improvement going on within the vicinity with other houses, and other places getting redeveloped into modern townhouse/etc.

With my credit in bad shape and needing at least 2-3 years to clear it up to a decent clean slate, really no savings at this time, and that $9K+ sitting in my IRA I am thinking I really would like to pursue this opportunity. I would think that it (First Time Homebuyer program to avoid any penalties on pulling Roth IRA funds for a home purchase) would work just as well with an owner financed deal as it would with a conventional loan, but wanted to see if anyone can advise on this? Want to make sure, and see how to go about planning for and going about doing that. I figured that going through this process with a loan originating service with the owner, would make it easier to prove for my First Time Homebuyer cash out option with my IRA, and to avoid as many penalty fees as possible. Just not sure how this all works.....

My plan would be to pull that money from my Roth (need to find out the logistics of this, any help appreciated), put it down for my 5% down payment, and then work on clearing up my credit as fast as I can (hopefully a year, but 2-3 is more realistic) and then would be able to re-finance out of the owner financing and into a more conventional 30 year mortgage. Would probably live here for 2-3 years or so, then turn it into a rental.

Guessing I should probably consult a professional, maybe a CPA, tax attorney, IRA specialist, not even 100% sure who to go to for advice on this, hoping you all can help. Any advice would be greatly appreciated, even speculatory info/ideas as long as your are being honest about how certain you are on your information.

I agree on kitchen and bath usually being the noticeable and having a good ROI, although they can sometimes be pricier renovations. Painting is always a decent ROI for not too much, adding or updating baseboards can go a long way and interior doors too. From some articles I have read though it sounds like exterior upgrades tend to have pretty good ROI, replacing the front door with a nice new steel one in a color that works well with the house, and new siding (or stucco or brick treatment) can be quite a good improvement in the look, that usually has pretty good ROI. All of this is assuming the property is dated and in need of those types of visual improvements.

Always keep in mind you are much better off matching renovations of the higher price point within your area, but not doing more. You don't want to be the most expensive house on the block because you will not have good comps to help with your property valuation.

If you are talking about a rental things are a bit different, you really should not go overboard  but find what matches expectations for similar rentals you are trying match in your rent price point.

Floorplanner looks great, thanks for sharing David

Yeah that sounds about right, obviously they are going to want to pull some equity out, if you offer less than what they owe then they probably want go for it, most sellers are going to want to cash out, pay off their line, and try to get a little equity out of it for themselves. A seller trying to get $210,000 for a house that is worth $170,000 in its current condition, is not motivated enough to make a deal for you. You need to find owners that are in a harder spot and realize how much work their house needs, and are in more of a position to want to sell quickly, those are the motivated seller types that you will be able to get better deals from. Stick to your criteria, don't bend on it or you may put yourself at risk on a deal. With the numbers you mentioned they could pay off their loan and profit $12,000 a a seller who is really motivated will go for a deal like that.

Austin you said subtract 20-30% do you mean for a wholesale deal? A flip? Or for a buy and hold?

Overall it sounds like you have a fairly good method for figuring your comps.

For a flip then yes you want to leave yourself a cushion for your profit and/or unforeseen repairs (along with subtracting out your known repairs). In this scenario you need to set what criteria is right for you to create your MAO. Determine how much you need to profit on each deal, how much your financing service will cost, accurately estimate repairs, closing cost, agent cost (if using one to sell), and a reserve for the unforeseen expenses.

Wholesale MAO should really just depend on your buyers criteria and what your investors need from a deal. For wholesale, most investors want to get properties that are priced at 70% ARV minus repairs. That means you need to calculate that, then subtract your wholesales fee, and viola, that is your MAO. Find out what criteria your investor buyers need met to help you determine your criteria.

For a buy and hold I would just say that your MAO should leave room for you to cash flow from the rent vs. monthly loan payments. Also you wan to make sure you are not overpaying considering the comps in the area.

What are you using to come up with comps, MLS, RealtyTrac or something like that, or something a bit more informal like Zillow or Trulia? Similarity and proximity are important for compa. Date sold is important, recent comps are the most helpful, especially in our crazy Denver market.

If you can find a good deal on a place and the right lender you can work around the large down payments. I know investors who get hard money loans, and some use lenders that lend up to 75% ARV. So say you find a good deal on a distressed property, to make the numbers easy

You get a property in bad shape from a motivated seller for $50 K

The property needs about $25 K in repairs to get it good shape

In good shape the property would sell for $100 K

So if you can get an appraiser to agree to the $100 K After Repair Value, then with these types of lenders you can get $75 K financed (75% of ARV). That means you have the entire deal completely financed to buy the property and fix it up with no money down. Please realize with these types of lenders you may need to pay a monthly fee for this type of hard money loan.

So after the house is fixed up you have two options;

1. Sell it, cash out around $100 K, you will have to pay some for the money loaned, and some for closing costs, etc. but should still leave some room for a good profit.

2. Rent it, turn into a buy and hold, once the place is fixed up and you have some equity in it, pay off the hard money by refinancing with a more traditional loan.

Obviously this type of deal take as good motivated seller, or discounted price one property, and the right type of lenders to help.

Try to find real estate investor friendly lenders, where I live they can easily be met by going to some REI meetups. Discuss with these types how to creatively finance deals, you can find ways to work on investing in RE without the pricy 20% down on conventional loans.