All Forum Posts by: Shawn Torsitano

Your ARV certainly sounds high. I doubt could command a price 15k over a house that was 370 sqft larger, assuming that property was in pretty good condition, which it sounds like it was. See if you can find something nearby that isn't almost 400 sqft larger, that's a pretty substantial difference for most places.

I would caution you on the plan with renting out to your parents. There may be seasoning periods with the banks that will prevent you from refinancing, so you need to make sure that the rents can support the higher interest rate if you're taking out high interest loans.

Please take this with a grain of salt, I'm not a real estate or securities attorney. It would be good for you to seek one out if you're concerned. My understanding is that SEC regulations come into play when you(being whatever entity has the deal) begins advertising to the public trying to solicit investors. If you're going around asking people that you already know, it should fall into the "friends and family" category.

If there are big players in your area, and none of them are taking interest in the property, that could be a red flag. Could have a severe foundation issue, or something else potentially devastating to the finances.

When you get into refinancing the loan to pay back investors, there are some things you'll need to be aware of. With large apartment buildings, that could be a year or two long process. Renovations will take several months. Renting it out will take a few more months. And then you have to be able to show results, with the new rent rolls, to get the higher valuation. There may be a seasoning period for the loan with the property, I'm not sure.

Ultimately, if you don't have a track record of this sort of project, you will likely have trouble getting interest rates as low as 7-8%. I would run the numbers at 12-13% interest rates. Figure out a much more solid estimate for renovations. Prepare a very nice, very thorough presentation, and try and set up some financing with friends and family. 

You could also go into it a slightly different way, and instead of borrowing the money with high interest rates, present the offer as an equity partnership, explaining your refinance exit idea. You'll own significantly less of the property when all is said and done, but the risk to you can be less, and you won't be paying interest rates on as much money. I would still recommend leveraging some, but the amount would be a call for you and your investors.

It is not illegal to ask investors for money, depending on the way that you are soliciting. "Friends and family" is the common first category. When you get into "advertising" your investments, SEC regulations come into play, as do the accredited investor status and such. Consult an attorney for more info on that, if that's something you're going to look into.

Vacant apartment complex sounds incredibly risky. I assume it's not all vacant. Your cost estimate is far, far too wide. Treat it like a flip. Find the ARV, subtract all your costs, your expected profits(may be different with commercial residential, depending on your exit strategy), subtract your financing charges at the 12%+, and figure out what you can offer.

This is me guessing, but if you're not sure about whether or not you can solicit investors, you probably have 0 experience in this area. Investors are unlikely to invest with you at 7-8% interest given your low experience level. There is a guy over here in Oregon who was on Podcast 140, he's been investing since the early 80's and he still pays 9% for private money.

Finding a reliable contractor is tough. The type of people that tend to go into contracting jobs are notoriously difficult to work with. I've had tons of difficulty finding decent painting employees.

My best recommendation would be to see if you can find any contractors in your area that are on BP. Having a common understanding of where you are trying to go is invaluable. Beyond that, reach out to some of the investors in your area, and ask for recommendations. That's going to be the most effective way to find someone solid.

Cosmetic can mean a lot of things, and could easy cost tens of thousands of dollars.

First off, I don't recommend judging ARV by "feeling". You're putting thousands of dollars on the line, and potentially your credit at risk of foreclosure. Take the time to ensure your ARV is valid.

Second, buying at 75% of ARV sounds high. Generally, the 70% rule is start at 70% of the ARV, and then subtract rehab costs. Paying 50% or less of the ARV is fairly common.

What do you have budgeted for rehab costs? It sounds like what you have it under contract for may be too high to wholesale it, but I would need a lot more numbers to comment on that further. $60k under makes it seem like a possibility, but 75% ARV doesn't.

Not sure how it is up in BC, but generally, the seller pays the commission for both agents, regardless of whether you're buying a rental or not. Even many FSBO's expect to pay a commission for the buyer's agent.

@Rich O'Neill

Yeah, my next plan was to send letters, and then start calling the REO department on a weekly basis until I make some progress. Or until it pops up on the market. But I'd really like to get it before it hits the market.

Thanks!

Thanks for the reply @Rich O'Neill

I spent about an hour and a half calling around the day after I posted this, I couldn't find the owner. 

The Tax records show that "Mortgage Equity" trust as the owner. The agent says US Bank. The address for mailing the statements to is Nationstar Mortgage.

I started with Nationstar's REO department. They said they didn't have it in their system, sent me to the standard customer service. They said they didn't have it, sent me to a different person in the REO department. Rinse and repeat.

After that I called a company called Chronos, because I found online that they managed the REO stuff for US Bank. They said they didn't have it, and forwarded me to the trust department in US Bank, who said they didn't have it either. She told me to talk to the sheriff and county assesor. The person at the sheriff's office was on vacation for a week. County assesor was able to find some document numbers on recent transfers, forwarded me to the document department.

Got some info there, of a company called Champion Mortgage. Called them, found out they were the company that had provided the original reverse mortgage. They actually did have the house in their records, and forwarded me to the REO department.

Drumrollllll.....

Champion mortgage is a subsidary of Nationstar, and the REO department they forwarded me to was the same place I started.

Hello Everyone!

I moved into a new area a few months ago, into a standard little neighborhood for my area. Whole bunch of 3/2, ~1,400 sqft houses, built in 1977/1978. Today, while the wife and I were doing misc. work outside, we started talking to a neighbor across the street. That standard, super great, old guy who takes immaculate care of his house and knows everything about the neighborhood. As an aside, yesterday he was vacuuming out his exterior light fixtures.

Well we found out today that the house next to him had been vacant for the last 3 years. Grass is always cut, so it never crossed my mind. Apparently the guy who was in it died 3 years ago. Not sure about specifics, but there was a reverse mortgage. Could have been some will related stuff. Regardless, an entity out of Texas called "MORTGAGE EQUITY CONV ASSET TRUST 2011-1" now holds the deed, and based on the public records and the paper taped to the front door, the foreclosure proceedings finished last month. Googling the mailing address of that entity, I got a company called Nationstar Mortgage.

What I'm wondering, is one, is my breakdown of costs accurate? And two, I am going to contact the company tomorrow, do companies like this ever sell a house like this without taking it to auction? The house is in fairly good condition, all things considered. Needs a new roof. About 2/3 of the siding has already been upgraded from T1-11 to hardiplank, so the remaining would need to be updated. Interior would need a pretty significant cosmetic renovation(all new flooring, paint, cabinets, etc), but I'm highly confident that there aren't structural issues that would need to be addressed. When in doubt, I went with mid-high cost estimates from The Book On Estimating Rehab Costs, and when in doubt I also assumed it would need to be replaced(like some drywall). Some of the work I can do at cost, I own a painting company and have a general contractors license. A few of my guys have some general construction background. The only thing that I bid at cost is painting, because I know for sure that is something we can do.

Cost breakdown is copy/pasted from the BiggerPockets calc. ARV is based on a few houses within a stones throw that have sold in the last 2-3 months. One of which is a house about 4 houses down the road, about 100sqft larger than this one, sold for $215,000. It was far nicer than other houses around, as it had been updated, but it still had a fair amount of 70's stained cabinets, trim, and doors. My closing costs may be a bit low, but that is at least countered by me being an agent(licensed, but never did anything), and realistically I can waive my commission when selling.

According to the data you provided, you can afford to offer $113,424.00 to make a profit of $30,750.00. This is based on an ARV of $205,000.00, a rehab budget of $35,380.00, and holding costs of $7,896.00.

See the full analysis below for more data.

Financial Summary for Flipper

Financial Breakdown

Purchase Costs

Purchase Price:	($113,424.00)
Purchase Closing Costs:	($3,250.00)
Total	($116,674.00)

Rehab Costs

Total Rehab Costs:	($35,380.00)
Total	($35,380.00)

Holding Costs

Monthly Holding Costs:	($1,974.00)
Total Days Held:	120
Total	($7,896.00)

Sales Costs

Sales Price After Fix Up (ARV):	$205,000.00
All Selling Closing Costs:	($2,000.00)
Real Estate Agent Fees:	($12,300.00)
Total	$190,700.00

Total Profit for Flip

$30,750.00

Flip Hypothetical Profit If Held For...

45 Days	90 Days	270 Days
$35,685.00	$32,724.00	$20,880.00

Estimated Repairs

Exterior Repairs Roof$4,500

ConcreteN.A.

Gutters$300

GarageN.A.

Siding$4,000

Landscaping$500

Exterior Painting$1,680

SepticN.A.

Decks/PorchesN.A.

FoundationN.A.

Interior Repairs Demo$1,300

Sheetrock$500

Plumbing$2,100

Carpentry / Windows / Doors$2,000

Electrical$1,000

Interior Painting$1,800

HVAC$3,000

Cabinets/Tops$5,000

FramingN.A.

Flooring$2,500

InsulationN.A.

General Components Permits$200

TermitesN.A.

MoldN.A.

Miscellaneous$5,000

Total Repairs: $35,380.00

@Greg H. @Percy N.

That's probably it. It does say 24 CFR 206.125.

Just looked up the requirements, that sounds like a nightmare.