All Forum Posts by: David Alyea

Proving how much y'all rock here on this thread! Great thinking, thanks for all the analysis. I think this deal is a pass, but was worth considering. On to the next one!

Thanks for all the replies. I will pursue the promissory note and deed of trust approach. My only concern there is if I have to foreclose. How much $ would that run? Does it have to go to auction or can it be a private matter?

The PM fees are crazy! 8 to 10% is of course typical, with 1 month's rent to turn it over. I told him as much, but he inherited the current setup and is happy to be an out-of-sight owner. To him, it was turnkey, so he's sticking with what is in place.

I asked him about zoning and the lease structure, for the same reason that I'm concerned about it being managed as a boarding house. But I figure that's his business.

I set it at $18,000 so that I have some cushion on the $24,000 price. How he pays off the $6,000, I don't know. I just wasn't keen on loaning him the full amount. $18,000 with 36 payments at 12% interest comes out to $680 per month - add in $100 tax and $70 insurance - and his nut is $850. So that $900 is cutting it really close. Of course, I'd advise him to get another property management company. Even if they charged 20% due to the boarding house nature of the property but then charged him for actual repairs, I still think that's way better than the 55% he's paying now and will of course increase his deserved cash flow.

I was contacted by a fellow RE investor about providing hard money for his deal. I've not done a deal like this before, so I'm looking for advice, particularly from hard money lenders.

He bought a house on his credit card for $24,000 and closed on it last Friday. The title is in his name. The house rents for $2,000 a month - as a boarding house situation. There is property management in place, and they take $1,100 a month and pay him $900 a month, agreeing to do any repair up to $500 at their expense. Taxes are $1,200 a year and insurance is $800 a year. He has a full time job, and this is his first RE deal. The house is worth $35K or thereabouts. He got it as a short sale directly from the bank, since it had about $100K on it. I don't know his credit score or what interest rate he's paying his C.C., but I guess it's 18% or so.

We agreed to 12% for a 3-year note for $18,000 with 2 points. Does that seem like a good number for the risk involved?

My main question is how to secure the deal. I think we would get a land trust and put both our names on it. What other terms, and how, do we need to specify to cover me in the event that he defaults? I need to know how I take 100% ownership of the house if he defaults - is that built into the land trust document or is that a separate contract?

I will do additional due diligence, but for now, I want to know if the numbers make sense for me, and how to do this legally to cover my interest.

Thanks for all the replies. I understand what y'all mean. Well, let me explain it another way. Let's say I acquire the house solely and "hire" my contractor to do the rehab. The thing is, he'll do so much more than that. The day the house closes, my realtor will give him the keys. He will have scoped out the work, so he'll start right in doing demo, getting materials, etc. I'll talk to him on the phone about work updates, scheduling, and choosing finishes, but he'll be 100% there doing it while I'm 800 miles away. I'm planning to use an iPhone app where we can do video in real time, so I'll get periodic live updates via video that way. Eventually, he'll meet the realtor and plan out the open houses, though of course I'll set the pricing with my realtor. I don't even think I'll be there to close when I buy or close when I sell. So I'm really hands off, by and large - and it really shows the extent to which it's all his work on site. Which is to say, if I didn't know him and trust him, I wouldn't even consider flipping in that city. It's because we've worked together and he's into starting with flipping that I'm wanting to do it. That's why I want to make sure we both win, not like I'm just paying him a wage.

I suppose it makes sense to start out with me 100% in control, and when he has some skin in the game, then we can work out different numbers. The thing is, as it stands, he may make $10,000 doing the work, I'm in for $10,000 of material, and after expenses maybe I end up making $10,000, so it's like we're 50/50 partners anyhow. Could be - I don't know, but I'm just throwing out numbers. I feel that by being partners (whether that's legally stated or otherwise arranged) that he'll be motivated to get it done fast and definitely right and be in the game, not just punching a clock. Does that make sense?

So all said, what do y'all think is the best working arrangement in this scenario?

Long term, we will be partners. As I see it, I want to start as partners, so he's invested in it to the extent that it's not just work, but the better (and faster) he does, the better we both do. Sort of like the bonus thing, I guess, but really structured more toward it being that we're partners. But point taken - maybe that's the way we start out. I already have an eye to a worst case scenario (well, not worst, but you know!) where it's not working out on our first flip, if I have to call in someone else to take over. But after 4 years of working together, I know he's going to be all-in to make this work, especially if he is working to earn a bigger cut than just salary or even salary+bonus. What do you think would be fair? How would you structure this agreement formally? Have you done this before?

Me - the acquiring part. So it'd be 100% funding from me, 0% from my contractor. Our goal as a team is to get him to where he's putting in funds some day, so it would be good to have a rev share model that will account for the changing investment contributions for future houses.

I'm looking for advice from those that have done so on how to best form a partnership between an investor and a contractor for flipping houses.

I have rental houses in one city and live in another city 800 miles away. I have had a contractor doing roofing, siding, handyman repairs, etc. for 4 years, and we've built a good working relationship. So I'd like to identify a wholesale house or REO that's a fixer and we'd partner on it. I'd handle finding the house, acquiring it, setting up an LLC and/or land trust etc., getting insurance, and bookkeeping. He'd manage the on-site project: managing the rehab, getting materials, getting permits as needed, and so on. In the end, we'd do a percent split of the net proceeds after all expenses.

In this situation, what would be the best way to proceed? I'm thinking of a number of questions:

* how to legally set it up
* how to make sure we're set up for taxes after the sale
* what percent split makes sense and is fair
* who buys and owns tools that are needed for the rehab
* other risks I'm not considering

I'd appreciate any guidance on how to do this.

I'm totally with you on the good money after bad. I could just move on, but it's a lot of money. And the other thing is... when it rains, it pours: I have this situation x2.

The 2nd one, however, the tenant still lives in town. He's moving in with his sister. He's not out of the house yet, but will be soon. After his 10 day notice, we argued, and I finally got him to agree to the 25th day after the notice. I saw the house, and it's well taken care of, and I expect he'll be respectful moving out. I sure hope. Anyhow, in his case, say I file now in small claims court. If the sheriff goes to serve him *before* he moves out, then the move-out may not go so smoothly. Heck, he may decide to stay and fight it after all. So I'm trying to time it so that he is served after he moves out - but I don't know his new address. I have his Mom's address down the street, I know right where she lives. But I don't have the sister's name or address, the house he's moving to, but I do know it's his sister, and she's in town. Is it possible that the sheriff can access the USPS mail forwarding records, which my tenant will likely submit or I can ask him to submit, and then the sheriff will know the address to go to? I certainly am going to try to learn his new address by asking just the right way, but I'm not counting on getting it from him. Any recommendations in this situation?

It breaks down as step 1 and step 2 for me in NC, as well. Step 1 - file 10 day demand for rent. Before the 10 days was up, we spoke often, she said they wouldn't come up with the $$$, so they were moving out. Indeed they did, after 15 days. So I never had to proceed to step 2 - file for summary ejection, get the sheriff to serve notice, etc. Therefore, I'm bypassing all the steps 2a. 2b. etc. with a mediator that you described.

Now I'm just at step 3. which is to file in small claims court. I feel like, if I get her served in NY, if she signs for the notice of complaint, then I'll go to court, she won't show of course, and I'll get a judgment against her. I'm 99% sure that's how it'll go down. I have the signed lease, I've got all the timeline laid out, I've got my ledger showing rent(s) received, and I have the amount I'm filing for down to the day all figured out.

So then it comes to step 4. - getting $ back. Once she knows I'm serious, I'll be happy to settle. Hell, if she sent me $500 it'd be better than nothing, since it'd cover my $168 filing fee in the NC county court I'm in. But I'd work out and agree to 50% to 60% if I could, and there would be 30-45 days from the time she's served until my court date where she could make a payment, and then I could file to retract my case.

Thanks for your comments on this issue. I'm owed $3,500 in rent, but my tenant moved from NC to NY. I know she and her husband both have jobs, but they were supposedly having bank account issues. I have the mother's name and address. I have email contact with my tenant, but she won't give me her address (I have mail to forward to her since she just moved out 2 weeks ago). On the plus side, she left the house in good shape. Still, I'd like to pursue getting what's owed me. Do you think it's worth my while having to find a valid address in NY and then getting her served? My end goal is to work a settlement with her for like 60% and then release my complaint.