All Forum Posts by: Paul Guilbeau

What kind of rate are you getting on the $460k for purchase and rehab?  What are you expectations on profit you want to make.  What is the SF of the house?

All -

     I have searched this forum and googled, but haven't been able to satisfy my curiosity as of yet.  Can anyone point me to the economics of the title insurance business?  It intrigues me that something that is seemingly 'outdated' with the advances in internet searching capabilities is still so expensive (at least from an RE investor standpoint).

     Some of the things I am interested in (that I cannot seem to find are) :

1.  What are the rates they are buying from the main underwriters, First American, Fidelity National, etc.  Is there cost $5/$100,000 of insurance or is it closer to $2/$100,000?

2.  What is the claim rate on title insurance?

3.  What are the rate differences between refi's and 'normal' mortgages?

If you can answer these questions, great, but really looking for an online resource to learn about the industry.

Thanks,

Paul

Yes and No.  I am using the same GC, but deal is different for a couple of reasons.  

1.  He found out he wasn't personally ready to not have any income for 5 months from a property.  So he gets 75% of a flat fee when I sign the contract with the realtor to sale and the other 25% of the fee when we close.  The 25% holdback is just peace of mind for me that he will do punch items on any inspection issues when I sell.  I also have determined a sales price that makes me the profit I want on the deal, for any NET PROFIT above that number I share with him 50/50.

2. I sourced both of these properties (pocket listing on MLS & a wholesale relationship I made). So now I am bringing the cash to the table, I sourced the property and I have one flip under my belt (STILL NOT CLOSE TO BEING AN EXPERT).

So, the GC is happy because he will get a chunk of cash when the property is ready to sell AND he also participates in the upside.

To me, this is the definition of a good deal.  GC had a problem that we are able to solve and is happy.  As with anything, communication and trust is the key.  Each property is its own deal or problem to solve and my situation or the GC's could change.  I think being open minded and flexible (while still being professionally diligent), makes for a lasting partnership.

Due to the encouragement from the podcast with @Jay Hinrichs, I am attempting to be more of a contributing member instead of only reading everyone else's posts.

I was introduced to flipping by a good friend who had a great GC that worked on their house.  The GC approached him with the following deal:  Investor funds 100% of purchase and rehab and receives 12% preferred interest and 30% of equity.  GC works at cost, and has 70% of equity.  GC sourced deal with wholesaler.  So, I was truly just the money guy, no value add, no experience, etc.

I did ALOT of things wrong and still had a really positive experience.  The biggest thing I did wrong was I didn't take full advantage of my 800+ credit score.  I had cash for much of the project and then used 0% cash advances on two credit cards that I've had for 20+ years that have very high limits.  The end result is that my credit rating took a big hit because my credit utilization soared.  In hindsight (and what I have already done), is establish a nice Line of Credit with a couple of small regional banks secured against stock holdings that I have.  This isn't necessarily 'cheaper money', but it keeps me much more liquid AND my credit score doesn't suffer.

The numbers are as follows (rounded for simplicity):

Purchase Price:  $120,000

1st Closing Cost:  $2,000

Rehab:  $50,000

Holding Costs:  $2,500

2nd Closing Costs:  $ 17,000

Interest (paid to me):  $8,000

Sales Price:  $239,500

Net Profit:  $40,000

GC Portion:  $28,000

My Portion:  $12,000

My Return: 11.5% in 5 months, 27.5% annualized (I really hope I didn't make any math mistakes)

I am really happy about it, but must warn that this worked for me and my personality.  I learn much better from doing and experiencing.  I approached this opportunity as my 'training classes'.  I was fortunate enough to make money AND learn a ton at the same time.  I also have a full time job that allows me to be more of a risk taker.  From this one opportunity, it motivated me to find BiggerPockets and learn all I can (sidenote: the podcasts are AMAZING).  I am currently rehabbing #2 and #3 and will close on #4 and #5 in the next two weeks. 

Top 3 things I have learned:

1.  You make the VAST amount of your profit on the buy side.

2.  As Jay mentioned, when you have limited or no experience, being focused on how much money you earn might need to be secondary to the value of the experience and the credibility you build.  Said another way, 10% of a great deal is better than 100% of no deal.

3.  Don't force the deal, listen to your gut.  If a deal makes your stomach queasy, then don't do it.  That is my signal that my risk tolerance level has been exceeded.

I hope that this has been helpful to the forum.

Brian -  

If I understand your question correctly, then the BRRRR calculator on here will give you the numbers you are searching for, I believe. You can play around with different re-financing terms and then you can determine how it changes things for you.

Just wondering thoughts on owner financing vs BRRRR strategy. They seem very similar, especially if you use a wrap-around mortgage on your owner financing. What am having a difficult time wrapping my head around is with BRRRR you get the advantage of depreciation on your asset, but with owner financing it isn't really your asset any longer, you are the bank. What am I missing here?

I have an ongoing relationship with my GC, but each property is a separate agreement, because each property is different.  The general understanding is a cost-plus, and then cash incentives based upon completion time frames and meeting budgets.  My GC also has a very good eye for design and trends so I feel he adds value here as well.  I usually have a good feel before I get any quotes from him on what I think the time frame and budget should be.

On average, he gets paid cost + 7.5% as a base price.  Then I usually have a 2-4 week window of completion dates, with different bonus structures (always cash, not profit).  I pay him the base price plus half of the bonus, when the house is ready to sale (sign in the yard/listed).  The other half of the bonus is paid at closing, to insure punch items from inspection are taken care of, etc.

Lastly, I also get competitive bids at random times, just to make sure all pricing stays in line.  On average, I do this on every third house.  It all depends on how closely you want to manage the process.