My advice is sell and try to rcoupe as much as possible or to at least minimize the loss. Your frined took on a a very risky project and sadly failed. She has shown that she doesn't have the ability to manage or budget a project. Even thought the project looks viable that doesn't me she has the ability to pull it off.
An alternative is to find a partner who does have the ability to pull this off. The risk there is she may not know if the partner is going off schedule or budget.
Basically she has the deal but needs the skill of manageing the project and the money to pull it off. She apparently has neither. I don't say that to be mean. I don't have project managment skills either - even with 20 years experience in Real estate.
Just becasue a deal makes sense does not mean it makes sense for you and your skills and resources.
Unfortunately for her, this is Great advice. After consulting with a new colleague today, this is the determination we came to as well. Thank you Ned. Case closed.
A friend of mine, aka my current real estate agent, is in need of assistance. I've spent hours trying to figure out a way to get creative and help her turn her failed project, which she just got served papers on yesterday, into at minimum a break even, for her, to avoid foreclosure. Ultimately this is not my burden and what ever happens does not affect me financially, but I still find myself up at 2am wanting to find a way to help her if I can, even if it's just providing her with a solution/way out.
A little over a year ago, she took out a New Construction HML for her first Real Estate Investment project. She purchased 2 acres of cleared land that currently has a small house that was built after the main house on the land burned down years prior. She sub divided the land into two separate acres, and began construction of a 1398 SqFt house on the acre with the small house. She planned to leave that small house, put a little work into it, and having it serve as a separate mother in law suite in addition to the newly constructed main house.
So far, the first acre has a septic tank, well, and a foundation built. Yesterday, she finally disclosed to me the amounts she owed on the HML and to the builder for the foundation work he's done. Below are the financials I've gathered with actual numbers, and rough Deal Analysis. This property is right next to our farm area and in a highly appreciating area, so Actual Post Construction Market Values in Deal Analysis at bottom will likely be higher than estimates when project is complete.
HML Loan Payoff $72,000 + Builder owed $30,000
Purchase Price of the two acres of cleared land & small house $93,000
Post Construction EMV of Lot/House #1: $379,000 - 1398 sqft single story ranch style @ $220/sqft + small House on 1 acre
Post Construction EMV of Lot/House #2: $307,000 - 1398 sqft single story ranch style @ $220/sqft on 1 acre
The builder had said the remaining amount, to complete the first house, he would require would be approximately $185,000. Factoring in the cost of the foundation to the amount quoted to complete construction, I estimate his overall construction costs to be $154/sqft.
I spoke with my GC we use for our Rehabs to see what he would charge to complete House 1 and Build House 2. He said House 1 could be completed for approximately $100/sqft, House 2 to build from the ground up $115/sqft.
Based on a rough SOW for the small house, I estimate it needs +/- $15,000 in work to improve the condition/rehab. The second lot, will also need a well/septic. Based on a rough analysis for a project timeline, I believe the total project can be completed in 5-7 months with the team I have available if we get involved in completing the work on the project.
Deal Analysis as a whole - Actual Costs may be slightly different but estimates should be fairly close
Post Construction Estimated Market Value - Lot 1: $379,000 Lot 2: $307,000 Total Estimated Market Value $686,000+
- $102,000 - Cost to payoff HML & Previous Builder
- $154,800 - Estimated Cost to complete House #1
- $170,370 - Estimated Cost to complete House #2: Includes New Well/Septic $7500, Impact Fees $2100, Permits $1000
= $427,170 - Estimated Cost to Payoff HML, Complete Construction on House #1, and Construct House #2
+ $686,000 - Total Future Market Value
- $20,580 - 3% Buyer Agent commissions as the current owner(Listing Agent) will be listing these properties without compensation
- $2,538 - Real Estate Transfer Taxes
- $1,500 - Settlement Costs Paid at Closing
______________________________________________
$234,212
- $27,900 - Payment to Seller for Down Payment made by seller to HML @ Origination (For her to break even)
= $206,312 - Potential Return before any Interest/Fees/Taxes/Etc
I've spoken to a few HM Lenders and ran rough numbers by them. They seem to be willing to lend on the project but so far they've required someone in the LLC to have 5 new builds under their belt as experience. I checked with my GC and although he's been involved in new construction and is confident in his abilities to complete the project, he is not able to show 5 completed projects. I'm also somewhat reluctant to using a HM Lender with the high fees they charge and I think utilizing private lending / or a JV may make more sense.
BP colleagues, I appreciate the time you've taken if you've read this far into my post and I kindly ask for your input on how I can help my friend avoid this unfortunate situation she's found herself in. We have some capital and are willing to invest but we need a plan.
dumb question but why did she only take a HML for $72k when construction was $300K+
She is probably better off just selling this or letting it go to foreclosure. Reason I say this is she appears to not have any construction experience in managing contractors and schedule so for an investor or new lender to come in, its a tough sell.
Hopefully she can find someone. Good luck
Exactly Right. The work was not completed. The Term was for 1 year. The term has come to an end. She hasn't completed the project and has not been able to sell the land as is. Here she is.
From my understanding, her initial plan going in was to use a HML to finance the land purchase/construction costs to build on the lot. Unfortunately, for any number of reasons, her plan did not go as she expected.
As of now she has about 20 days to pay off the HML or they will take the property back.
She currently has the whole piece of property up for sale trying to generate the money to pay what she owes and get rid of the land, but at this point she has ran out of time.
I've considered just paying off the HML and builder for the foundation. If I'm able gain ownership of the 2 acres, foundation, and small house for $102,000, that is a great deal by any means. After doing so, the problem I am faced with is how to fund the remainder of the construction of the new house/houses.
I looked into getting a HML for the costs associated with completing the Construction. The lender I spoke with wanted to see a Builder/GC with 5 builds under his belt that was a member of my LLC. Unfortunately my GC is not able to provide that.
At this point, I'm trying to figure out what form of financing I can possibly obtain, to fund the costs associated with building the houses. My GC is capable of completing the New Construction, and has the License/Insurance in place to do so.
A friend of mine, aka my current real estate agent, is in need of assistance. I've spent hours trying to figure out a way to get creative and help her turn her failed project, which she just got served papers on yesterday, into at minimum a break even, for her, to avoid foreclosure. Ultimately this is not my burden and what ever happens does not affect me financially, but I still find myself up at 2am wanting to find a way to help her if I can, even if it's just providing her with a solution/way out.
A little over a year ago, she took out a New Construction HML for her first Real Estate Investment project. She purchased 2 acres of cleared land that currently has a small house that was built after the main house on the land burned down years prior. She sub divided the land into two separate acres, and began construction of a 1398 SqFt house on the acre with the small house. She planned to leave that small house, put a little work into it, and having it serve as a separate mother in law suite in addition to the newly constructed main house.
So far, the first acre has a septic tank, well, and a foundation built. Yesterday, she finally disclosed to me the amounts she owed on the HML and to the builder for the foundation work he's done. Below are the financials I've gathered with actual numbers, and rough Deal Analysis. This property is right next to our farm area and in a highly appreciating area, so Actual Post Construction Market Values in Deal Analysis at bottom will likely be higher than estimates when project is complete.
HML Loan Payoff $72,000 + Builder owed $30,000
Purchase Price of the two acres of cleared land & small house $93,000
Post Construction EMV of Lot/House #1: $379,000 - 1398 sqft single story ranch style @ $220/sqft + small House on 1 acre
Post Construction EMV of Lot/House #2: $307,000 - 1398 sqft single story ranch style @ $220/sqft on 1 acre
The builder had said the remaining amount, to complete the first house, he would require would be approximately $185,000. Factoring in the cost of the foundation to the amount quoted to complete construction, I estimate his overall construction costs to be $154/sqft.
I spoke with my GC we use for our Rehabs to see what he would charge to complete House 1 and Build House 2. He said House 1 could be completed for approximately $100/sqft, House 2 to build from the ground up $115/sqft.
Based on a rough SOW for the small house, I estimate it needs +/- $15,000 in work to improve the condition/rehab. The second lot, will also need a well/septic. Based on a rough analysis for a project timeline, I believe the total project can be completed in 5-7 months with the team I have available if we get involved in completing the work on the project.
Deal Analysis as a whole - Actual Costs may be slightly different but estimates should be fairly close
Post Construction Estimated Market Value - Lot 1: $379,000 Lot 2: $307,000 Total Estimated Market Value $686,000+
- $102,000 - Cost to payoff HML & Previous Builder
- $154,800 - Estimated Cost to complete House #1
- $170,370 - Estimated Cost to complete House #2: Includes New Well/Septic $7500, Impact Fees $2100, Permits $1000
= $427,170 - Estimated Cost to Payoff HML, Complete Construction on House #1, and Construct House #2
+ $686,000 - Total Future Market Value
- $20,580 - 3% Buyer Agent commissions as the current owner(Listing Agent) will be listing these properties without compensation
- $2,538 - Real Estate Transfer Taxes
- $1,500 - Settlement Costs Paid at Closing
______________________________________________
$234,212
- $27,900 - Payment to Seller for Down Payment made by seller to HML @ Origination (For her to break even)
= $206,312 - Potential Return before any Interest/Fees/Taxes/Etc
ROI: 45.3% RoR: 68.9% PM: 30.07% Acquisition/Exit: 8 Months
I've spoken to a few HM Lenders and ran rough numbers by them. They seem to be willing to lend on the project but so far they've required someone in the LLC to have 5 new builds under their belt as experience. I checked with my GC and although he's been involved in new construction and is confident in his abilities to complete the project, he is not able to show 5 completed projects. I'm also somewhat reluctant to using a HM Lender with the high fees they charge and I think utilizing private lending / or a JV may make more sense.
BP colleagues, I appreciate the time you've taken if you've read this far into my post and I kindly ask for your input on how I can help my friend avoid this unfortunate situation she's found herself in. We have some capital and are willing to invest but we need a plan.
A friend of mine, aka my current real estate agent, is in need of assistance. I've spent hours trying to figure out a way to get creative and help her turn her failed project, which she just got served papers on yesterday, into at minimum a break even, for her, to avoid foreclosure. Ultimately this is not my burden and what ever happens does not affect me financially, but I still find myself up at 2am wanting to find a way to help her if I can, even if it's just providing her with a solution/way out.
A little over a year ago, she took out a New Construction HML for her first Real Estate Investment project. She purchased 2 acres of cleared land that currently has a small house that was built after the main house on the land burned down years prior. She sub divided the land into two separate acres, and began construction of a 1398 SqFt house on the acre with the small house. She planned to leave that small house, put a little work into it, and having it serve as a separate mother in law suite in addition to the newly constructed main house.
So far, the first acre has a septic tank, well, and a foundation built. Yesterday, she finally disclosed to me the amounts she owed on the HML and to the builder for the foundation work he's done. Below are the financials I've gathered with actual numbers, and rough Deal Analysis. This property is right next to our farm area and in a highly appreciating area, so Actual Post Construction Market Values in Deal Analysis at bottom will likely be higher than estimates when project is complete.
HML Loan Payoff $72,000 + Builder owed $30,000
Purchase Price of the two acres of cleared land & small house $93,000
Post Construction EMV of Lot/House #1: $379,000 - 1398 sqft single story ranch style @ $220/sqft + small House on 1 acre
Post Construction EMV of Lot/House #2: $307,000 - 1398 sqft single story ranch style @ $220/sqft on 1 acre
The builder had said the remaining amount, to complete the first house, he would require would be approximately $185,000. Factoring in the cost of the foundation to the amount quoted to complete construction, I estimate his overall construction costs to be $154/sqft.
I spoke with my GC we use for our Rehabs to see what he would charge to complete House 1 and Build House 2. He said House 1 could be completed for approximately $100/sqft, House 2 to build from the ground up $115/sqft.
Based on a rough SOW for the small house, I estimate it needs +/- $15,000 in work to improve the condition/rehab. The second lot, will also need a well/septic. Based on a rough analysis for a project timeline, I believe the total project can be completed in 5-7 months with the team I have available if we get involved in completing the work on the project.
Deal Analysis as a whole - Actual Costs may be slightly different but estimates should be fairly close
Post Construction Estimated Market Value - Lot 1: $379,000 Lot 2: $307,000 Total Estimated Market Value $686,000+
- $102,000 - Cost to payoff HML & Previous Builder
- $154,800 - Estimated Cost to complete House #1
- $170,370 - Estimated Cost to complete House #2: Includes New Well/Septic $7500, Impact Fees $2100, Permits $1000
= $427,170 - Estimated Cost to Payoff HML, Complete Construction on House #1, and Construct House #2
+ $686,000 - Total Future Market Value
- $20,580 - 3% Buyer Agent commissions as the current owner(Listing Agent) will be listing these properties without compensation
- $2,538 - Real Estate Transfer Taxes
- $1,500 - Settlement Costs Paid at Closing
______________________________________________
$234,212
- $27,900 - Payment to Seller for Down Payment made by seller to HML @ Origination (For her to break even)
= $206,312 - Potential Return before any Interest/Fees/Taxes/Etc
I've spoken to a few HM Lenders and ran rough numbers by them. They seem to be willing to lend on the project but so far they've required someone in the LLC to have 5 new builds under their belt as experience. I checked with my GC and although he's been involved in new construction and is confident in his abilities to complete the project, he is not able to show 5 completed projects. I'm also somewhat reluctant to using a HM Lender with the high fees they charge and I think utilizing private lending / or a JV may make more sense.
BP colleagues, I appreciate the time you've taken if you've read this far into my post and I kindly ask for your input on how I can help my friend avoid this unfortunate situation she's found herself in. We have some capital and are willing to invest but we need a plan.
A friend of mine, aka my current real estate agent, is in need of assistance. I've spent hours trying to figure out a way to get creative and help her turn her failed project, which she just got served papers on yesterday, into at minimum a break even, for her, to avoid foreclosure. Ultimately this is not my burden and what ever happens does not affect me financially, but I still find myself up at 2am wanting to find a way to help her if I can, even if it's just providing her with a solution/way out.
A little over a year ago, she took out a New Construction HML for her first Real Estate Investment project. She purchased 2 acres of cleared land that currently has a small house that was built after the main house on the land burned down years prior. She sub divided the land into two separate acres, and began construction of a 1398 SqFt house on the acre with the small house. She planned to leave that small house, put a little work into it, and having it serve as a separate mother in law suite in addition to the newly constructed main house.
So far, the first acre has a septic tank, well, and a foundation built. Yesterday, she finally disclosed to me the amounts she owed on the HML and to the builder for the foundation work he's done. Below are the financials I've gathered with actual numbers, and rough Deal Analysis. This property is right next to our farm area and in a highly appreciating area, so Actual Post Construction Market Values in Deal Analysis at bottom will likely be higher than estimates when project is complete.
HML Loan Payoff $72,000 + Builder owed $30,000
Purchase Price of the two acres of cleared land & small house $93,000
Post Construction EMV of Lot/House #1: $379,000 - 1398 sqft single story ranch style @ $220/sqft + small House on 1 acre
Post Construction EMV of Lot/House #2: $307,000 - 1398 sqft single story ranch style @ $220/sqft on 1 acre
The builder had said the remaining amount, to complete the first house, he would require would be approximately $185,000. Factoring in the cost of the foundation to the amount quoted to complete construction, I estimate his overall construction costs to be $154/sqft.
I spoke with my GC we use for our Rehabs to see what he would charge to complete House 1 and Build House 2. He said House 1 could be completed for approximately $100/sqft, House 2 to build from the ground up $115/sqft.
Based on a rough SOW for the small house, I estimate it needs +/- $15,000 in work to improve the condition/rehab. The second lot, will also need a well/septic. Based on a rough analysis for a project timeline, I believe the total project can be completed in 5-7 months with the team I have available if we get involved in completing the work on the project.
Deal Analysis as a whole - Actual Costs may be slightly different but estimates should be fairly close
Post Construction Estimated Market Value - Lot 1: $379,000 Lot 2: $307,000 Total Estimated Market Value $686,000+
- $102,000 - Cost to payoff HML & Previous Builder
- $154,800 - Estimated Cost to complete House #1
- $170,370 - Estimated Cost to complete House #2: Includes New Well/Septic $7500, Impact Fees $2100, Permits $1000
= $427,170 - Estimated Cost to Payoff HML, Complete Construction on House #1, and Construct House #2
+ $686,000 - Total Future Market Value
- $20,580 - 3% Buyer Agent commissions as the current owner(Listing Agent) will be listing these properties without compensation
- $2,538 - Real Estate Transfer Taxes
- $1,500 - Settlement Costs Paid at Closing
______________________________________________
$234,212
- $27,900 - Payment to Seller for Down Payment made by seller to HML @ Origination (For her to break even)
= $206,312 - Potential Return before any Interest/Fees/Taxes/Etc
I've spoken to a few HM Lenders and ran rough numbers by them. They seem to be willing to lend on the project but so far they've required someone in the LLC to have 5 new builds under their belt as experience. I checked with my GC and although he's been involved in new construction and is confident in his abilities to complete the project, he is not able to show 5 completed projects. I'm also somewhat reluctant to using a HM Lender with the high fees they charge and I think utilizing private lending / or a JV may make more sense.
BP colleagues, I appreciate the time you've taken if you've read this far into my post and I kindly ask for your input on how I can help my friend avoid this unfortunate situation she's found herself in. We have some capital and are willing to invest but we need a plan.
Hey Nikaila, Welcome to Bigger Pockets!
I am in the Charlotte, NC area and have found many people to connect with using the Forums by selecting my location up top in each Category. Members will likely find and connect with you, but you can also do the same.
BRRRR is a great Real Estate Strategy and is the one we employ as well. There are so many ways you can go about it and get creative to maximize your results.
If you haven't already, a book I would recommend reading/listening to on audible is BRRRR by David M Green. My guess is that you've already heard of the book but just thought I'd mention it. It lays out the process and explains each part of it.
I find myself listening to it at least once a month, as I am in a different place, have a different mindset, and am pull new ideas from it each time.
Stick around and ask questions, we're here to help however we can. Over to the left column you can click on Real Estate Strategies, then select BRRRR in the drop down list. You can read/post in that section to learn more.
Best of luck and glad you're here!
Hey Jeremiah, Welcome to Bigger Pockets! Glad you're here..
I see you're not new to investing and you've got some experience already!
Bigger Pockets is a great place to learn and seek advice from the countless other investors who have Failed/Learned/Succeeded in the areas you are investing.
I just joined the BP Community recently myself, and in the week I've been here, through communicating with others, have refined my approach and business plan in the area in which we're investing.
Dive into the forums, take advantage of the resources under the LEARN tab up top to the left, ask questions. We're all here and happy to help!
Hey Sarah! Welcome to Bigger Pockets! I'm not sure if you've ever picked up a book, or listened to one, about Real Estate Investing but there are an abundance available out there. Many members of the BP Community have written books as well. On the topic of Fix/Flip or Fix/Rent, a few of the books I've listened to that I would highly recommend are...
1: BRRRR (Buy Rehab Rent Refi Repeat) by David M Green (Bigger Pockets)
2: The Book on Flipping Houses by J Scott (Bigger Pockets)
3. FLIP by Rick Villani
Book 2 & 3 lay out practically the entire process involved in flipping a house. I've learned so much from both of those books as they explain the process and each one provides just a slightly different approach.
Book 1 is the current strategy I employ in my investing activities and It can be VERY Profitable.
Also learn about, and check out the book, Investing in Real Estate with No (and low) Money Down. Many investors, including myself, invest in deals using OPM(Other Peoples Money) and some times from the start, have none of their own money tied up in the deal while making excellent returns.
Good Luck and if you have any questions, feel free to reach out, here and happy to help in addition to many of the other members here on BP. Glad you're here!
Hey Schuyler, Welcome top BP! This is a question asked by many people who enter the world of Real Estate Investing. This was a question I asked when I my interest was peaked year ago.
A great book I would reccomend, available on audible you can listen to...
The Book on Investing in Real Estate with No (and low) Money Down.
It will lay out many of the strategies that beginners and even successful investors utilize to invest in real estate.
A popular strategy of many of investors involves investing with OPM (Other Peoples Money), myself included. It takes some creativity at times but you can make money with no money in this business if you have the knowledge, and often time experience required.
The best advice I can give you is to educate yourself. Audio books are a great way to do that and have helped me so much on my path to get to where I am and where I plan on going. Best of luck to you starting your career. Attend some local REIA meetings too!