All Forum Posts by: Khaled Helmi

@Gordon French, just from the other side of the transaction, how do you protect the investor putting the 10% down?  In the worse case scenario, that its a bad deal and you walk away - then the investor would be stuck with the property OR lose the 10% right?

As an investor a 10% return wouldn't compensate me for that kind of risk as I'd be inheriting the problem if it was a bad deal OR only getting a 10% return if its a good deal (i.e. no upside)

Not criticizing you - just curious on your response to that issue.  Solving that issue may solve your problem...

Absolutely agree with Jim - Private schools are notoriously weak financial operations.  Yes the property investor may be in better shape since the school needs to keep its building, but do you really want to invest in a property where your tenant is struggling year-after-year to pay the bills AND you have little in the way of alternative options IF they go out of business?

While the tenant may be locked into your property, you're also stuck with that tenant and I wouldn't be surprised to see them renegotiate the terms of the rent down the road.  Be really careful...

It depends on the contractor and how much you want to work with them - I've gotten contractors to come out for free estimates and sometimes I'll pay them like $50 to come out and have them subtract it from the work if we hire them (i.e. if you get the job this $50 will count towards it).

lol - 750k eh?  So how much is it really worth? 250k?

Just for kicks you should call him back and open with, "So I hear you want to sell your house..." ☺

@Alma Mills  With all due respect, this project needed to be analyzed a little further BEFORE you began as the numbers seem good at $1mm added value.  But the financial nerd in me is breaking it down and here's what you really got:

Initial Value: $1.1

Project Costs: $625 + $250 = $875 (I assume you need the whole 250 to finish the project)

Total All-in Value: $1.975

Post Project Value: $2.2

Net Value Add = $2.2 - $1.1 - $0.875 = $225,000

Essentially $875 was used to generate a $225k return - which is around a 25% return if the whole thing takes 1 year.  Not bad at first glance but it seems like a lot of risk and work for a 25% return - plus i'm not sure some of the others costs are factored in yet.  I'm curious if the builders out there would take on a project with these numbers if it came across your desk? @J Scott @Manolo D.

Obviously this all is irrelevant because my understanding is you've already begun the project - so if you probably have to finish it now.  But I dont think you're in a bad situation - i'd finish what you can finish so its as close to a finished product as you can get (i.e. finish framing as you mentioned) keeping a little money in your pocket for holding expenses.

Then try to find a money partner to take an equity interest in the project.  

If my numbers are right, their returns would be mediocre (@250k they own 12% of a $1.975 project projected to produce $225,000= $28,500 return or 12.6% ROI) BUT you have derisked it enough at this point where the investor can come in towards the end stages when you're finishing the project. They will know that their money is spent on finishes and marketing AND they may get it fairly quickly if the house sells (maybe 3-6 month turnaround which will boost their ROI to 20+%).

If I were in your situation then that's how I'd do it.

That's an excellent question and its simply specific to us and our investors as the way we operate is to do deals without debt. Yes you're right the returns per LLC-dollar are going to be less, but our risk is also less as our holding costs are practically nil (utilities & prop taxes) and in a bad market we have the leeway to sell at whatever price we need (i.e. the bank wont take it away from us).

But again that's simply a rule we have with our investors where we are cash buyers and do not take on debt/leverage.

@Scott Schaecher - great story and my biggest complaint is we don't know how it ends!

We're currently in the middle of our 2nd rehab purchases from a foreclosure auction, and its taking quite a bit of time (our first was quick and profitable).  For this one we had to work with an architect to change the roof and add some sqft to the house by turning it into a colonial. Its been a lot slower than expected.

Probably the biggest difference is we (1) cash buyers so no interest payments and (2) we're partnering with a contractor who gets paid only from the profits.  That slows things down quite a bit as he has to do his other contracts to pay the bills, but our interests are aligned quite well in terms of saving as much money doing the job.

Wish you the best with this house and please keep us updated!

Absolutely agree that you should hire an attorney for your FIRST deal on a 350k investment - not doing so is putting you at risk of getting ripped off badly.

Right off the bat your talking a $5.4mm investment property (your share being 6.5%) - does that sound like the total cost of the property?  If its less, then someone's equity is coming at your expense...

The devil's in the details in these docs once you get past some of the basic surface numbers. Whose going to operate the LLC? Are they receiving salary? Who determines that? Can they issue more shares/units? Can they take on debt with the LLC? What are the rules on selling your ownership stake - do you need their permission? Is your 9% return guaranteed? What happens if it isnt paid?

So many questions that are going to be dealt with in the Operating Agreement and an attorney will have the experience to give you good advice on what is good - and what needs to be changed.

If this was a 30-50k deal then i'd be emphasizing the relationship to the operators and you could probably get by without an attorney, but in this case I dont think it matters if it was your own blood brother - 350k is a big first-time investment and its well worth the few hundred dollars to hire an attorney.

If you've already talked to the builder and they refused to let you out of the rest of the 10k (the 3k may be impossible to justify recovery for) then i'd probably do a consult with an attorney on the contract and your situation.  The builder probably has just as much legal background as you do, and if its not clear in the contract that you lose the whole 10k then there may be loopholes out to save your 7k.