Re: first flip exit feedback - Posted by JPiper
Posted by JPiper on April 19, 1999 at 15:31:04:
Just to point out the obvious, the fact that you’ve been studying real estate and finance for years with no action on your part does not change the merits or lack thereof regarding your deal. While I think it’s good (imperative) to take action, sometimes new investors get TOO motivated to take any deal at all, just to get in the game. In the end, whether you’ve been in the business a few days or a number of years, the numbers are what tell the story.
In your case, renting the property will create a negative cash flow?.because you’ll have ongoing maintenance and repairs.
If you make the repairs, you’ll have $20K in the deal. Whether you can owner finance and pull $20K from a downpayment from the buyer is questionable?but you know your market better than I. Even if you do, the buyer will have to pay a higher payment than your existing payment to create your profit. Again, without the interest rate details, etc. I can’t make a judgment on this, or for that matter your market.
If you don’t make the repairs, the question is whether this will still be marketable. Again, you know the picture better than I. But again, you’ll need to get a downpayment of at least $13K and terms that exceed your existing terms to create your profit.
The question in terms of owner finance is that you will have an ongoing responsibility for the underlying loan?.so there is an ongoing risk to you if your new buyer defaults. The purpose of profit is to compensate that risk. Whether either of the above scenarios will do that again depends on the exact numbers, and your appetite for risk. You haven’t provided enough numbers to judge this.
Again though, the deal is quite skinny. Trying to retail properties for a $3K-$5K profit as an expectation leaves little margin for error. If you’re in a position where you can’t walk from the deal, I wish you luck. But I would not make a practice of this type of deal in the future, even if it works out for you. It’s skinny, and is problematical because you don’t have an effective exit for your cash investment unless you are successful at retailing the house to a buyer who gets a new loan. Most buyers in this category will be people who want the house fixed, raising your cash investment.
By the way, if you sell owner finance you should be able to get an above market price?.assuming the market will be able to bear the payment at that price. But again, your cash requirement from possible buyers owner finance is important too, and you’re going to be in at a fairly high level.