All Forum Posts by: Wendell De Guzman

 Unfortunately no one responded so I can't put a mindmap together.

 Thanks Michael. I agree with you on having that great work ethic and imagination. To be good in flipping, you definitely need to have both of those qualities in abundance.

 Matt, we should talk. This is exactly what we're doing but for a 12-month period and we've only recently seriously require a credit repair company to be involved upfront.

 Finding tenant/buyers is easy. There's a HUGE demand for this. Also, there are a lot of people who have good jobs, and have cash in the bank but their credit is not good enough that banks still deny them.

The highest non refundable option fee we've collected is $27,500, the smallest being $5,000 and we average around $10,000. That is for my market (Chicagoland) so it might be a little less or a little more depending on where you are.

If you're a newbie and you've watched far too many flip shows on TV, you should NOT do fix-n-flips unless you have the following "5 C's of a Flip" figured out:

1.  You need a COLLATERAL (the house you're going to rehab) and it got to be a good deal, or a house substantially BELOW market value. Here's an example of a good deal:

ARV - $150,000
Repairs - $50,000
Purchase Price - $50,000
Notice I said it's a "good" deal (it's OK, not great). Your profit in the above deal will not be $50,000 because you have selling cost, holding cost and if you use a hard money lender, you will have cost of money as well. You'll be lucky to clear $15K-$20K on a deal like the above.

A few days ago, I wrote a post on a strategy that is MORE PROFITABLE THAN A FIX-N-FLIP.

2. You need access to CASH (even if you're using hard money loan). A $200K project (purchase + repairs) will typically require that you have $60,000 liquid cash. Why do you need so much? Hard money lenders will require you put down 20% of the purchase price + pay for the origination fee (2-4 points) and have 6-9 months in reserves (interest payments).

By the way, if you don't have $60K in your bank account, don't despair. Here's a post I wrote 2 weeks ago to help you REHAB A HOUSE WITH NO CASH OUT.

3. You need to have good enough CREDIT to qualify for hard money and also for conventional financing in case you need to refinance out of the hard money (in case it's taking you too long to sell a house). Credit score has to be 660 or above.

4. You need to have the CAPABILITY to do the renovation (i.e, rehab experience). If you're a newbie, you might need to partner with an experienced rehabber/flipper or the hard money lender will require that you have an experienced General Contractor as part of your team. Part of building your capability is having a good listing agent on your team who has sold lots of houses in the area/town you want to focus in.

and lastly,

5. You need to have the CAPACITY to do the deal. Do you have time overseeing the project? How much time do you have to speak with the GC, go to the job site, check the receipts, monitor the expenses to see if you're still within budget, talk to the listing agent, etc? If you have a full time job and your weekends are limited as well - doing a rehab might be tricky. Rehabs take longer and harder than what you see on TV (flip shows).

Also, if your rehab project is very far from you (2 hours or longer drive) and you don't have someone you trust who is closer to oversee it, maybe you should forego that project because your capacity to do that deal will be limited.

Experienced rehabber or flippers - did I miss anything as to what a newbie investor got to line up first before he/she can rehab a house? 

 Thanks Kalonji.

Let's do another deal!

 Stephanie, the option fee is considered part of the downpayment.

And yes - that gets deducted from the purchase price if they buy the house or qualify for financing.

In my market, 0% of my deals have appraisal below the +10% premium. I have one house where we set the price to the tenant/buyer at $150,000. The appraisal came out at $168,740. I would have made over $18K more but I gave that "freely" to my tenant/buyer. If he does not qualify - I can raise the price to market value.

If the appraisal comes in low, I can do any one of those three things you mentioned depending on the market, the tenant and the property. If the tenant really like the house and the value of the property is not exactly 10% above the year 1 value but about 8%, I can order another appraisal or I can ask the buyer to come up with the difference.

 Rich,

Lease option can be used as an entry strategy - meaning - as a way to buy a property but I use it mainly to sell a property that I acquire through conventional means (buy it using cash or hard money or conventional financing). I use LO for single family homes with price range of $100K to $250K - that's based on extensive research in my market - as to the "sweet spot" or optimum price range.

Rent credit is you're giving say $100/month credit that goes towards the downpayment to the tenant/buyer per every $1500/mo rent you charge them. Prior to Dodd Frank, rent credit is normal - the tenant/buyer feels like he/she is not wasting their money in rent. With Dodd Frank rent credits can not be given unless you want your LO to be construed as seller financing.

 I agree with using LOs to wholesale houses with little to no equity. I call it Lease option facilitation. 

I will look into the tenants should not be responsible for repairs but the way we do our lease options, we renovate the houses to like-new condition that we rarely have maintenance and repair issues anyway.

 This is a very smart strategy. Depending on your market, LOs make sense - specially in a rising market where rents remain strong and rising  as well. When the market goes down (BM 1 or Buyer's Market Phase 1) LOs don't make sense anymore as it's difficult to profit from it when your values are depreciating vs. appreciating. Below are the different market phases: (LOs make sense specially in S 1, S2 and B2)