All Forum Posts by: Russ McKelvey

Thank you for the great advice. We are going to meet at the property today to go over the scope of repairs together and discuss our JV arrangement. Then it is just waiting to find out if the bank will accept our offer.

Hello BP!

I am working on getting a property under contract that I plan to wholesale. I have finance and some real estate investing experience, but no construction or GC experience.

In the process, I met a General Contractor in my area that is looking for a JV partner to do a fix and flip with. I did some checking and he has 20 years of experience, a website with lots of good testimonials, BBB A+ rating, and Home Advisor screened and approved. He says he has 3-5 crews at any given time working that business, but wants to start doing fix and flips for himself instead of just renovations for homeowners.

He proposed a 50/50 profit split, my question is how are these normally structured? 

He is interested in doing a JV in which he would act as the GC and manage the renovations. I would find the deal, put up the capital required by one our hard money lenders, and line up the financing and sale of the property. He proposes we would split the profits 50/50.

My first observation was in the project he submitted to me that there was a repair budget, but no consideration for the settlement costs x2, holding costs, financing costs, etc. So we would need to go over the numbers in detail before proceeding. Likewise, he may think my rehab budget is not accurate so I am sure our estimates would be better together.

For the deal I am working, our numbers are:

My question is, how are these JV's normally structured?

In the scenario above, I would put up the $29,000 in capital. The rest of the purchase and reno cost would come from a hard money lender.

To me, profit would be defined as anything leftover from our sale after the hard money loan is repaid and I get my $29,000 dollars back. Then whatever is left over would be split. Does this make sense?

Then if we lose money on the deal, at a minimum, I think we should split 50/50, but that also means I lost $29K.

What are some other ways that you have used to make this work? I think we both will do better with each other's strengths at play, but I want to make sure the JV is structured in a way that is equitable based on capital and work we each put into the deal and I get some benefit for taking most of the risk.

Thanks in advance.

@ Tom Gimer Thanks again! I sent you a PM.

@Tom Giner Tom, great advice. If a wholesaler double closes with transactional funding, do the profits become taxable as short term capital gains? Also, would there be two sets of settlement costs that need to be accounted for in the deal? I am prospecting in MD and the settlement costs just for transfer and recording fees seem very high.

Thank you for sharing your expertise.

Hey BP! It has been awhile since I posted, but last time I received great advice and love the 4plex that we purchased four years ago. Thank you again for your sound advice and being willing to share your experiences.

My wife and I are trying our hand at wholesaling to generate some cash for our next investment.

Today I found an REO that I think has really good potential for a wholesale property.

The details:

The bank is asking for $189,000 but foreclosed for $174,000 two months ago.

ARV based on comps is 260,000 (one was next door and sold at the end of November fully renovated)

Estimated Repairs 45,000 (this is $30 / sq ft estimate for a major rehab (needs carpets, paint, new appliances, etc.) the pictures look like it may need a new roof. The pictures also show some smoke damage above the fireplace and in the living room. I still need to do a drive by tomorrow and speak with the listing agent to see what else I can figure in.

After I make sure there are no other major repairs I would like to offer (260,000*.70)-45,000= $137,000.

Please let me know if I should be more concerned about the smoke damage around the fireplace than just paint and carpets.

Beyond the offer price I am hoping the community can also help me answer the following:

Will a bank accept an offer with an "or assigned" buyer so that I can assign the contract and do a double closing? If not, how do you work around this? Do you buy it yourself and then sell it and pay two sets of closing costs and short term capital gains tax on the sale?

Thank you in advance for any advice you can provide regarding this potential deal.

Very Cool. Does anyone know how many Pro or Plus users BP has?

Great job BP!

Thank you for the great advice. As always meeting the tenants after purchase always presents a few surprises. Funny how the tenant that "always pays early" tells you last landlord was great because he worked with her a few days here and there.

or

"I didn't say anything during teh inspection but the sink squirts water when the dishwasher is running, most goes in the sink, but some under and here is the vinyl that the prior landlord put over the water damage.

But all in all everything in great condition minor repairs necessary and a good group of long term tenants.

Thanks for all the advice.

Wanted to close the loop and let everyone know how this is progressing. We met with all four tenants and I am so glad we waited to meet the last one because she was out of town before making any decisions.

We decided to first offer to renew lease for the newest tenant who was paying the highest rent with no change and kept at 850. She also referred some people to look at our home in Woodland Park because they were looking. Mentioned a leaky bathroom faucet, toilet flap needs replaced and wants a ceiling fan (very easy.)

Then we offered the 3 and 4 year tenants to renew (staggered in OCT and NOV with a 25$ increase this year and thanked them for their long term tenancy and how well they take care of their units.

Instead of offering rent hike to last we just terminated the lease 1 SEP so we can move in and satisfy loan requiremnet. Unit needs most work and she had a laundry list of minor complaints. Also was a day sleeper so made maintenace and repairs difficult. She planned to move out in 9 months out of state as well. We will move in, fix this unit, move out in year and lease for going rates.

Thank you all for the great advice.

Saw a few comments about Colorado Springs market being effected by losing a brigade at Fort Carson. This articles shows that Fort Carson is actually the only installation that will gain (1800 Soldiers) despite the 10 BCTs being cut.)

Also construction jobs for teh new aviation brigade should help the local market over the next few years.

http://www.armytimes.com/article/20130702/NEWS/307020002/The-huge-BCT-overhaul