I have to admit, I’m a little greedy when it comes to turning the house over.
I usually don’t like partnering with many transactions at this stage of my career, but when the transaction flow isn’t as solid as I expected, I rethink this whole concept of having a partner.
But partnerships are another great way for new investors (and grizzly veterans) to turn homes without money.
Posted a few weeks ago, We talked about three case studies for flipping a house without money. So, in Case Study # 4 here, we’ll take a closer look at how everything was combined …Especially you are a cynic yet I don’t think you can turn your house over with your own money :-).
As you can see, even if you’re completely new to this flipping house, it’s definitely possible.
Moneyless flipping house case study # 4
About four months ago, a few guys contacted my acquisition manager, Bill Roberts, about the deal they made.They are we Hard money lender For the inside out of their house.
Bill politely declined, but realized that there was a potential acquisition opportunity for us here.
Although these two guys were relatively new in business and they didn’t have a connection To make money They were trying to borrow, but that wasn’t enough to consider a deal.
So, instead of throwing away the inside out of this potential house altogether, I told Bill to invite them to our office and meet them in person.
So they came to our office …
Importance of ARV and all other costs
As soon as I met these guys, I immediately liked both. I realized that they made up for their lack of experience with enthusiasm and ambition. I like go getters like this, regardless of experience.
So we started looking at their predictions. The big number that stabbed me was their repair costs, and it told them a little about the house, it seemed to me that their number was a little lower.
Apart from that, they seemed to have ARV nailed to the well quite a bitl. I happened to know the market and it seemed reasonable.
Their ARV was just about $ 300,000, they were using 70% rule Correctly, their refurbishment costs were just over $ 37,000.
I don’t remember exactly how many contracts they had, but I think it was about $ 175,000. If you think about it now, they might have actually put it together for $ 185,000.
But for the sake of discussion, let’s call it $ 175,000.
So the math looks like this:
ARV: $ 300,000
70% rule: $ 210,000
Repair costs: $ 37,000
MAO: $ 173,000
Net income: ~ $ 60,000
At first glance, this deal looks like a real winner.
But not so fast …
50% of something or 100% of nothing – which one do you choose?
So I started negotiations. They wanted a 50-50 equity split, which was a pretty good deal for them. I always recommend doing this When you first started.
For them, they will get our expertise and our money and get 50% of the deals.
Bill and I talked about it, but we did a lot more flips than they had, so the 60% split felt much more reasonable.
After all, we brought a fair amount to the table: expertise, experience, and above all. cash From one of our private lenders-we were able to secure with a single phone call.
They probably liked 50%, but found that this was a pretty good deal at 60%, so they adopted it.
At this time, at the time of negotiating the terms of the contract, there was no opinion on the initial repair costs. I took those numbers purely at face value.
Refurbishment costs … Silent but potentially deadly killer
The next day we drove to the property.And that was when things changed, and then we noticed How off-based were their repair costs actually …
We were very impressed with them Estimated repair cost (I wrote it properly with a typewriter instead of scribbling it with a pencil in the field) – It may look foolish.
As soon as I started estimating repair costs, a very different situation emerged.
Just compare their number of refurbishments with their number:
Theirs: $ 37,000
Ours: $ 71,000
Our number was almost double. Oh boy …
This is how important it is to get your repair costs right to make money on the inside out of your home!
We came back to them and told them that if we couldn’t get the property at a big discount, the deal wouldn’t be closed.That number for us Maximum Allowed Offer (MAO) Of $ 135,000.
Importance of nailing repair costs
Bill taught them how to return to the seller and the tactics to use. He obviously did a pretty good job of talking to them through negotiations with the seller. I don’t know exactly what he said, but whatever it is …He should bottle it and sell it!
To be honest at this point, I thought the deal was completely dead!
Surprisingly, Seller DID reconsidered trading with veteran investors and agreed to actually sell at our price.
The more realistic math needed to look like this is:
ARV: $ 300,000
70% rule: $ 210,000
Repair costs: $ 75,000
MAO: $ 135,000
And, thanks to Bill’s last-minute negotiation advice, the numbers actually looked like that. The breakdown of the final profit is as follows.
Soft cost: $ 30,000
Net income: $ 60,000
Our view: $ 36,000
Their view: $ 24,000
It’s not shabby for them or for us.
New Investor – Don’t be afraid of partnership deals
As you can see from the numbers, everyone left very happy. We were happy, our hard money lenders were happy, and our new houseflip partner was also happy.
It is worth noting that these investors were lined up with another money guy before meeting us. They were trying to do it in 50-50 splits with him, but he didn’t know how far the repair costs were.
If they were dealing with him, they probably made little or no money. They may have lost money.
If you borrow money from someone who may not have the experience of verifying your number, you must confirm your ARV and repair costs 1000%, otherwise you won’t make money Hmm.
The lesson of the story is this: if you partner with someone who has more experience than you, take less if you have to. In the process, you will learn and gain more to start your path to success.
In that case, check the ARV and repair the number 1000%. Otherwise, you run the risk of losing credibility.
Once again, a flipping house without money Wrong How to do
And yes … these brand new investors are DID Turn this house over without money..
So for those who think money can’t turn a house over (I know who you are), it can – in fact, it always happens. We always do it.
If you don’t have money – someone else has. It could be a hard money lender, a private money lender, or another investor like us.
Therefore, keep all options open and be creative. If you think it can be accomplished, it can be accomplished. And if you’re new, take less, learn, and move on to the next flip.
Then, at the next event, you probably don’t need a partner and you can get all the benefits yourself …Make sure that the repair costs are nailed!
If you get this far, leave a comment below! What do you think? How did you make money in an unconventional way?
Leave a comment and share your experience or ask me what you want about flipping the house below!