All Forum Posts by: Trent Stone

Depends on how much experience you have, how much down you have, if you are out-of-state, etc. Generally speaking when you are starting out you should expect about 3-4 points up front, interest only payments, and about 10-12% interest for 80% of the purchase price and 100% of the rehab budget covered. They will also cap the amount they are willing to lend on the ARV so they will require an appraisal. ie. if your ARV is $100,000 they probably won't lend you more than 70-80%, $70,000-$80,000. Things are a little tighter right now with covid, but it's still very doable.

If you are looking for private money, then it all depends on the investor and your relationship. There are no set rules. I use a combination of private and hard money. Hope that helps!!

I wouldn't trust the seller to give you accurate information about rehab costs. It also depends on HOW you want to rehab the property. Maybe they are thinking cheap rental rehab and you are thinking nice, up-scale rehab. I have a few contractors I use in my out-of-state investing. Most of them are happy to go out and give you an SOW for free. Sometimes if it's out of their way I'll just offer them a couple hundred bucks to be nice and keep a good relationship. Make sure you are serious though, don't jerk them around if you don't plan on buying for a year or two. Once you get a couple SOW's you'll get an idea of how much materials and labor should cost for the area so you won't have to send them out for every property you are looking at and you'll have a great idea of rehab estimates. 

Also, cannot recommend @J Scott's book on estimating rehab costs highly enough. He will give you EVERYTHING you need to be aware of and how to get the best budget....Love that guy! Hope that helps, good luck!!

Depends on how extensive the mold is and how far it has spread. It's like cockroaches, if you see one spot, you are almost guaranteed there are a hundred others. That house looks bad, but you have a 70k rehab budget, so I'm assuming you can basically rip it down to the studs, in which case getting a mold remediation company to come in shouldn't cost more than about $1,500-$2,000, I imagine. Looks like it'll be a fun project though, good luck!!

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $119,000
Cash invested: $1

Latest Fix n' flip in Indianapolis.

How did you find this deal and how did you negotiate it?

Wholesaler

How did you finance this deal?

OPM

Hey!! We have been focusing mostly in Bates-Hendricks and Fountain Square for our flips. But we'll take anything that needs a little work and is priced accordingly. Let me know if you get anything off market that would make a good flip. Also, I have a flip in Terre Haute UC I'm looking to assign. PM me if you think you can find a buyer and I'll send you the details. Thanks!!

Welcome!! I hear Huston is a great market to be in right now! To answer your question, any of the above are good strategies. Depends really on your situation. What's your risk tolerance, what interests you most in REI, how much capital do you have, etc. If you are looking to bootstrap with very low cost and overhead, then wholesaling is a fantastic way to start. A basic but great formula to figure out what you should be offering on these properties is just a flat percentage of whatever the highest ARV is. I think in Houston you should be around 65% ARV. eg. if a property all fixed up is worth $200k then you'll want to get it under contract for $130k. Then blast it out to your cash buyers for about 135-140k. Look for properties that need some work or dated. You'll probably want to avoid anything that is a complete gut. You can still wholesale higher-end properties, but they move slower and are not as abundant. I would find whatever the median home price is for the area and try to target properties that are a little under that number. They pass hands a lot more frequently and you'll be able to move them quicker. Try to focus on one strategy though and become an expert in it. I think you'll have a lot more success that way. Also, try and pick a target area within Houston and become experts. Know what rehab costs generally are, price per sq ft, what type of properties are in highest demand, etc. If you are in an area with a lot of families, then properties with only one bathroom are going to be far less desirable. Heat is an issue there, so I'm guessing central air is going to be a big deal....just stuff like that. Also, network, network, network. You'll want to know who all the players are in the investment world in your area.

Hope that gets you in the right direction. Don't hesitate to reach out to me if you have anymore questions. Good Luck!!

@Yenisel Avila Do NOT use any of the online real estate platforms to determine a home's value. The Salt Lake Board of Realtors did a little mini study and found that actual home prices in Utah County were on average almost 10% off from Zillow. Imagine having a house worth $400k and selling it for $360k because that was the Zistimate. Also, a lot of the sales data is off, which is what those platforms are using to calculate the home value, which explains the discrepancies. If I were you I would find 3 agents to give you CMA's for current value and after repair value if it were fully renovated. There are lots of formulas investors use to determine their MAO(maximum allowable offer), but most commonly they will want to be all in under 75% ARV. Eg. If the ARV of a house is $100k and needs $25k of rehab, then the most they could offer is $50k.

As to what your parents should do, depends a lot on the situation. Are your parents moving either way? How soon do they need the money? Do they have a lot of equity? Do they need the money? What is the current interest rate on their mortgage? etc. If they owe more than 75% of ARV+rehab costs then it really doesn't make sense to try and wholesale it. You can get a contractor to come give you a bid so you have an idea what the repair costs actually are. If you are able to wholesale it then you could save them a decent amount of money by avoiding commissions and closing costs. If the house worth about $300k as is, then that's around $18k you are saving just by not paying a Realtor. But, if you don't have any cash buyers and can't find them, then hiring a Realtor would make a lot of sense. If you can find cash buyers, then cool. Figure out how much an investor will pay, tell your parents that you can save them over $20k in fees and commissions, then work out a wholesale fee with them. I imagine you aren't going to take as much as you would normally as a wholesaler.

Be sure you are following all the laws in Florida to make sure that you aren't breaking any or "practicing real estate without a license". The typical process would require you to sign a contract with your seller, put in earnest money so you have an equitable interest in the property, then assign that contract to your cash buyer when you find them. 

Let me know if you have any other questions I can help with. Sounds like it could be fun, good luck!!

First, you can never really trust the numbers they give you. They are just a quick screen you can use to see if you want to look closer. If you are interested then you need to do all your own due diligence and verify anything the seller is telling you with receipts, bank records, leases, rent rolls, etc.. Appreciation depends more on the area than the individual property, so I would do market research to look at things like population growth, income growth, new jobs coming to the area, big plants closing and people losing jobs, new construction planned, etc. If the properties are in good shape, they will still appreciate. GET and inspection and make sure you look at the foundation, the electric, the plumbing, roof, ac, water heater etc. Look for any deferred maintenance or big ticket items that are coming due soon. Also, a general rule of thumb that will help you stay out of trouble is that your vacancy, capex, and repairs should equal about 30%. So these numbers aren't too bad for these properties, but I'd raise them a little, ESPECIALLY for old buildings. You can talk with local property management companies to see what actual vacancy rates and expense ratios are. You must verify, verify, verify. Look at what they are ACTUALLY renting for, not "COULD raise rents $150/mo". 

For me, I am instantly suspicious because they are both offering over a 15cap. Unless they are in a war zone, that seems VERY high for me. Just from a quick Google search I can see that the population dropped 18% and the population is tiny. I'm guessing your vacancy rates are going to be much higher and unless you are banking on something big happening in that area sometime in the future, the appreciation isn't going to be stellar. So, yes, the cap rates should be higher because the risk is going to be higher, but I'm not sure a 15 cap is extremely realistic, but get your numbers airtight and find out for yourself. Generally speaking, in a c-class neighborhood, you would expect to see cap rates at 8-10. If it really is a war zone (D+ class or below), then yeah, you can get a 15 cap, but I wouldn't do it.

Hope that was helpful, let me know if you have any other questions!!

Short answer is however you want, there are literally no rules as to how you want to structure your JV. I do, however, recommend making sure all expectations and responsibilities are very clearly outlined and who's getting what for their contribution. Plan for every scenario and how it will be handled in your JV. What if the appraisal comes in low, rehab comes in high, someone loses their day job during the rehab and can't contribute anymore, someone doesn't perform on your JV, the contractor bails on you, etc. I advise very strict accounting and no less than weekly meetings to ensure everyone stays on the same page. If you have any doubts go meet with a lawyer and have them draw up the JV agreement for you. Good luck, sounds exciting!!

You will never see rates this low again in your life, I think it's an amazing time to apply.