All Forum Posts by: Trevor Smith

@Dell Schlabach

Hey thanks. Yes, me too! I would LOVE to break even and get this stress out of my life and move on. 

But what if I am waiting for it to sell for 450k, and waiting, and waiting? And by the way, my interest and tax payment per month is $3,600! It is killing me. Every month paying that is making this deal into a real lemon. 

What if a month goes by with no sale? So I pay another $3,600, and realize I need to lower the price to 440k. Now I have lost 10k in the sale, AND another $3,600. 

If I had just bitten the bullet and refinanced and got a renter, I would be on a forward track at least. Know what I mean? 
Maybe instead of planning to rent for 10 years, which could feel like dragging the pain out, what if I make a plan to rent it out indefinitely? Plus, I could try to sell it again every year when the lease is up. Maybe I could sell without realtors if I start marketing it for sale while my renter is still in it. 

The good news is that the house is in Richardson, I believe to be a very desirable location. And our demand is still high, volume is still low. 
I reckon I can have a big open house and see what offers I get. If I don't get a single offer, I will consider refinancing. 

Hey guys,

Well, I am still awake because of this dang flip I'm trying to wrap up. I can't sleep. I am cutting this super close. I could explain what I think went wrong, how I came to do this deal, etc. But that is not relevant. It is what it is now. My question is: should I try to sell for 450k or refinance and rent for awhile? Is there another exit strategy you can suggest? 

Here's some numbers: 

Purchase $276,000

Borrowed rehab money at 11.9% $45,000

Our rehab money no interest credit cards $37,000

Total Rehab cost $82,000

Closing costs $21,800(hard money: 3 points at 11.9%)

Total Hard Money interest(and property taxes)if we sell within the next 60 days $21,600

Total other interest(to my brother and my grandma around 3%) $2,176

Other(pest control, appraisals, inspection, utilities, insurance) $2,2263

ARV $450,000

Realtor commissions 5%(my listing agent has agreed to 2%) $22,500

TOTAL $428, 339

PROFIT about $20,000

In theory, this is a 21% return on our down payment of $58,000+$36,000 rehab. Which is decent right? But why does it feel so horrible?? I've also heard the profit should be 15% of ARV which is $61,000 so I'm definitely not even close to that.

This is all assuming that my rehab does not go over-budget which I am certain it will by about $15,000. And it is assuming it will sell for my asking price in the first month, which it very well may not. 

If this thing doesn't sell, what should I do?? Should I refinance immediately and rent instead? If we rent for 10 years, maybe it will be a money-maker after all, someday. What can I expect to pay to refinance? The refi cost is what would kill this option. If I squeek out with $5,000 profit, but it costs me $15,000 to refinance, then I would have to rent for a long time just to make up for the refi cost! 

I am confident that I can find renters. I don't think it will cash flow though after PITI, repairs, and vacancies. But that's okay. If we pay down the mortgage for 10 years with rent, we will come out ahead eventually.

Thank you for reading. I appreciate any help! Especially if you know a great bank that will refi very affordably for me! 

@Bill Gulley

Okay, I won't guarantee to pay the gaps. Wow, that was easy. 

@Jay Hinrichs

I appreciate your help. I really do. A buyer/tenant ruining the place is a possibility. I truly believe that if I find the right buyers, all this concern is moot. It is of course, right to be concerned, and prepare for risks. But I believe there are many buyers out there that are going to be happy as clams to do this, and all this worry about default is going to be completely unnecessary. 

I will be sure to ask an attorney before I guarantee paying gaps. I really don't want to guarantee it anyway because I want to move on from the deal, and not have to be involved in the deal for 20 years. But I think that part would make the investor feel a lot better. 
Is the chicken green too? How the heck do you get a green egg? Do they really taste better/different? 

@Jay Hinrichs Okay thank you for the info and advice. I will have to be careful to pitch this appropriately. I'm under the impression that if I don't pitch this to strangers, and if I don't guarantee returns, then I should be safe on the securities side, yes? 

I would never do what you're suggesting! What that guy did in Oregon. You're right, that sounds criminal and it's just plain dishonest and dishonorable. I will be telling the investor about all risks, and we will deal with them together if they come. I will probably need to guarantee that I cover payments while a new buyer is found. That is why it will be so important to find qualified buyers that I believe will not default. 

I believe this idea will sell itself. All I have to do is tell them that they will have cash flow(what they want) with no land lording(what they don't want). It is very simple. I read your bio and your experience is really cool and impressive. But you said yourself, owning real estate is not for everyone, including yourself. Plus, you had the means to get 300 rentals. Either because you are very smart, or hard working, or good at connecting with the right people, or whatever it was. Not everyone has that kind of success with rentals. My parents have been able to get up to five with a LOT of hard work and risk and it's a drop in the bucket for replacing their income. They would need probably 33 rentals and it's just not going to happen. 
The people I will be pitching to will probably be engineers and the like. They don't have time or mental resources to learn all about getting rentals and all of the risks and management associated with it. And I believe the risks with rentals is just as high as what I'm proposing. If a tenant skips out, you have to cover the cost of vacancy while you find a new tenant. I'm actually offering to pay for that gap. The risk is actually LESS for the investor working with me. True, a foreclosure takes 45 days, but what does an eviction take, 21 days? And that is my problem, not the investor's problem. 

One roof replacement will take an entire year's worth of cash flow from 2 or 3 of your rentals. In order to cash flow on rentals after taxes, insurance, property management, vacancies, and repairs, you have to find a tremendously good discounted deal. But what do you need to find those great deals? $3,000 a month in marketing? $6,000? How many hours per week? One good wholesaler would help, but I haven't met one yet. And people will not introduce me to one if they know one because they are like diamonds that they keep to themselves. 

But I am open. I just want to be successful while not feeling like I have screwed anyone. If you have a better strategy for me, please share it. I would be grateful. 

@Jay Hinrichs

Okay, well I am definitely interested why he ended up in jail. Can you be more specific? 

@Jay Hinrichs

Thank you for your post. I disagree with you on many things but I appreciate your informative and respectful discussion. I'm sorry how long this post is but I am passionate about this. 

I will not be telling any banks the house will be owner occupied. It will be sold to an investor as an investment property, and yes, the investor will be putting 20% down. I am still trying to find my way of doing things, and I think I will be putting all of the down payment from the buyer toward the house also, not keeping any of it. So in that sense, the investor will be putting only 10% down because 10% will be coming right back to him. 
This will keep me from having to mark the house up 10% in order to keep that 10% for myself. Or even 5%(putting other 5% toward the house) which I considered. I don't need 5% or 10%. That would just be greedy. Instead, I am going to charge a flat rate. I am asking myself what the investor would be willing to pay. Because he is also using my services, I think he should pay something, and not just the buyer. The investor is going to get monthly cash flow with no land lording, no repairs, and doing no rehab. I think that is worth something. I was thinking $2,500 from each of them. But I will have to find out what people are willing to pay. 

What credit score does one need to get an FHA loan? 640?
Why would I want to find unqualified people to buy houses? It's like you guys think I am literally insane. I don't know why. Why would I sell a house to someone that doesn't have 3.5% to put down?? That is not even just a terrible idea, that is purely insane. The people I sell houses to will make plenty of money and have at least 10% to put down. If they don't make enough money, then I can't help them. This strategy is for people with bad credit, not with bad everything else. They can't have bad income, bad down payment, bad everything. They can have ONE bad thing--bad credit. And even then, I sure as hell want to know why it's bad. They need to have a good reason. And those good reasons do exist, contrary to what your impatient ears would say. You are too impatient to bother with any of it. And that's fine. Like I said to Bill, no one is going to make you do it. You are off the hook. 

How do you figure owner financing is a poor use of your credit? It is cash flow(the #1 thing that everyone on this entire website wants) with no land lording, no property management cost, no repairs,vacancies, taxes, insurance(literally everything that everyone does not want on this website). How the heck does that seem like a bad use of credit? This is the absolute best way of using your credit that I can imagine. The worst case is that you keep the house that you bought. And now it can be rented, resold owner finance, sell the note, resell conventionally. 

I plan to be completely transparent. If I have a viable service to offer, then it will sell itself. I will not have to hide or sugarcoat, or lie about anything. If it is not a viable business model, then people will tell me to get lost, and I will have to find something else, or adjust it. In another post regarding podcast #70, Bill Gulley made a sarcastic comment about how the broker/investor(myself) would never disclose all factors to all the parties, but I plan to do exactly that. 
I will pitch everything with transparency and adjust the terms until people like it. If I ask 100 investors to pay $2,500 for this opportunity, and all 100 of them say no, then I will make it $1,500. Then $1,000. I will adjust until I have a service that is helping everyone involved. Also, you guys act like doing a wrap is inherently illegal because of the DOS clause. The clause doesn't say it is wrong, or illegal. It doesn't even say the banks dislike when you do it! It says they may invoke it if they wish.

I realize the regulations for loaning to people are strict. And you see this as being a deal-breaker. But why can't it be done? Why is it impossible to loan to someone with bad credit ethically so all parties benefit? Can you not imagine that being possible? It is just completely beyond your comprehension? 

@Bill Gulley

I actually liked this post you made. You managed not to accuse me of anything or insult me. I am shocked. Did someone sit you down and tell you not to be an ***hole? 

Really, if all your posts were like this last one, you'd probably get a lot further in making your point and bringing people to your side. You will get a lot more bees with honey. 

Do you think a real estate investor should sleep so much better because he goes around finding people in pre-foreclosure, offering them squat for their house and stealing all their equity, and then feeling like a saint because he did the generous act of saving them from foreclosure? Then he goes on to rent the house to a low-income couple that is destined to be renters because of their socio-economic background, and has them pay for his house for him. That investor is a self-diluted and unethical thief. You are telling me that I'M trying to be predatory?? 

Finding cheap houses to buy from desperate people and then renting(having them buy your house for you) them to other desperate people is the cornerstone of real estate investing. But all of THAT doesn't rub you the wrong way, right? Only owner finance seems wrong to you. When in fact, my strategy is the only one even trying worth a damn to help anyone but himself. 

Tell me, what fully ethical and better way do you propose I make money? 

@Bill Gulley

I was so relieved that you hadn't poked your head in where it wasn't wanted until now. I thought I had almost made a post without your godlike infallible wisdom telling me what to do. 
Hey, but let's go with what Bill says and spread fear around like the plague, and you know those millions of people that can't get homes? Screw 'em. If the banks can't help them, why should we? Because Bill is afraid. Guess what Bill?? YOU don't have to do it. No one is going to make you do owner finance okay?? 

That predatory thing you think I'm doing? What do you call land lording Bill? The land lords are taking money from people in hopeless situations to pay for their own mortgages. What do you call that? The American way? I will allow them to pay the same price and not be a suck-up lowly tenant their entire lives. I have rented my entire life and I know that it makes you feel like a lesser person. You feel like you hold no cards, and you are literally buying someone else's house for them. It's awful. But you're scaaareedddd...so let's make everyone else scared too. Those people with bad credit, fu*k 'em, right? 

You're making assumptions about me and I don't know why. I don't know why you assume I am a scheming predator. I have said nothing to indicate that. Maybe you have known such people in your time, and now you have become impatient, judgmental, and presumptive in your old age. You're a sad grumpy old man with nothing better to do. If it didn't infuriate me so much, I'm sure I would take pity on you. 
I have every intention of qualifying my buyers. The last thing I want is for them to default! I want everyone to benefit. Why would I want anything less? I'm going to be responsible if they default because I am going to guarantee payments to the investor for any gap in payments. I will also be responsible for covering payments during the sale of the house if the lender calls the note due. If it is called due, we will have to sell the house to pay them off. Who is going to be making those payments during that time? I will be. So I come here to try to mitigate that risk, and you treat me like sh*t and I'm sick of it. You don't know anything about me. You don't even bother to ask me if I'm going to find qualified buyers. For some reason I can't explain, you assume I am a total creep. Do you have some kind of vendetta? 

If you don't think people with bad credit can be qualified buyers, then you're more prejudicial than I thought. There are a dozen reasons why someone with a good income can have bad credit. And there is no reason why they shouldn't have the pride of ownership if they are hard-working Americans, or hell...even if they are hard-working non-Americans. 

@Rob Harris

Thank you Rob Harris! This is really appreciated. You actually added value to the thread and addressed my question. 

As it turns out, I am actually finding several lenders that have told me they have done wraps in the past or that they do wraps, and are ready to help me.  So there may not be any need to find lenders without ever broaching the subject and simply cross my fingers.