first potential deal, but... - Posted by derrick

Posted by Brad (CA) on August 31, 2003 at 02:13:06:

I am wondering why the contractor doesn’t do the work and retail it to make the full profit.

I also never rely on anyone elses data (comps, etc) unless I have checked it all out myself, including driving by the comps and verifying those are the best comps available.

I am assuming the “she” you are referring to is the retail buyer (the other investor)? If you guys would enter a joint venture, then both of you would put up something of equal value, either money, rehab work or? If I am reading your post correctly, she just wants you to buy it, rehab it with your money and then she wants you to just hand her half of the profit? WOW…where can I get a deal like that!!!

It doesn’t matter where you get the money or even if you need money dto do this, if YOU are the one putting the time and effort and risk into this, you shouldn’t hav eto split the profit with anyone. Now, if you want the comfort knowing it is almost a guaranteed sale when you buy, you might want to negotiate to sell to her at a slight discount. Let’s say, 10% ($60K x 90% = $54K). That still leaves you with a good profit of $17K, she gets a house in rehabbed/ready to rent condition at a fair discount and everyone is happy.

Once again, she is asking for a handout, not a joint venture. If you think you need her to guarantee the sale because the houses don’t sell well in the area, then you need to figure that into the equation and decide if you want to even take the chance. But if houses do sell well there, then you really don’t have to give much if any discount. You might be able to market the house before it is even fixed up or even before you close escrow.

See if you can find the average marketing time for similar houses in the neighborhood.

It sounds like there may be a deal there but careful of the potential freeloader.

first potential deal, but… - Posted by derrick

Posted by derrick on August 31, 2003 at 24:30:41:

hello all,

i’ve been reading this site as well as others for awhile and am looking to start in REI. recently i’ve come across a property offered by another investor as a rehab. he says he purchased it cash from HUD and that its after repaired value will be at least 60k. he’s asking 27k and says it needs approx. 10k in repairs. btw, he is also a general contractor. he has provided me with the comps for the area (they check out) and i also plan on getting a few contractor estimates for the repairs on my own.

here’s my dilemma. he suggested that i enter into a joint venture with yet another investor in order to foster growth in an investor network that we are all part of. the other investor has promised to buy the house for market value after it is rehabbed to use as rental property. in return for this “guaranteed” sale, i’m supposed to give her 50% of the profit. correct me if i’m wrong, but isn’t this way too much profit for her, especially since she is contributing NO money to the rehab. we are both using hard money lenders for our respective loans. how much profit, if any, should i allow her in this? furthermore, should i even do this deal? all comments are welcome and appreciated.


Re: first potential deal, but… - Posted by Tom-FL

Posted by Tom-FL on August 31, 2003 at 22:04:13:

Well, I concur with the other respondents. This deal sounds just a little goofy to me.

As mentioned, if it were such a great deal, the contractor would do it himself, especially on a 10k rehab.

Secondly, what allegiance does this guy have to the other investor?

Third, if all the numbers are reasonable that you posted, (someone already already tipped you off to wholesaler’s value and repair estimates) then it breaks out as follows:

+27,000 purchase
+10,000 repairs

+03,000 misc, holding and closing costs, best case.

-60,000 sale price

=20,000 profit


So you are giving a 10,000 discount on a 60,000 house. That’s 16.666666% which means she’s buying at 83.333333% just for being willing to buy the house.

I’m sure you could offer it on the open market for 65,000+ and take a 5 to 8% discount. Remember your 60,000 figure is for “average houses” not pristine newly renovated. Your house should command a premium due to your skill and hard work. I would even put it out there for 70,000 and settle in the low to mid 60s.

Don’t sell it for 50,000 just because there is a willing buyer at that price. There should be hundreds of buyers at that price actually. In fact, I’ll buy it :slight_smile:

Re: first potential deal, but… - Posted by michaela-ATL

Posted by michaela-ATL on August 31, 2003 at 07:45:12:

Like the other posters said. this sounds fishy to me.

  • In my area very seldom the comps the wholesaler provide check out. They’re usually too high
  • The mentioned rehab cost is usually too low.
  • 10K is really a ‘fluff job’ - why wouldn’t this contractor do it himself, if he already owns the house?
  • Why would another investor buy at full price (even, if given back 10K or so? )

There’s a lot of illegal flipping going on in atlanta, which is 1 investor is selling to another investor at an inflated price. The buyer will get some kind of kickback for doing that. Usually there’s a seller, buyer, appraiser and mortgage company involved. COuld be one of those deals. Maybe they gave you comps, that came about the same way? Are the given comps occupied or are they vacant? Are they nicely renovated or is the roof done on only 1 side, so, that the appraiser can take a picture ;-)?


Re: first potential deal, but… - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on August 31, 2003 at 07:01:04:


I go along with Brad(CA) on this. You can “Network” just by having breakfast, lunches, suppers together. You don’t need to be giving up any of the profit to “network.”

Also, I too am suspicious of this contractor giving you shuch a “sweet deal.” What did the contractor pay for the property? Could you duplicate that quality of deal on your own? What are the other HUD deals like where you are?

You should compare this supposed deal to the rest of the marketplace to judge whether it is a good one or not. If you have not studied the rest of the marketplace, you are not ready to buy yet.

It is far better to pass up two good deals because you are cautious than get stuck in one bad deal bedcause you are not cautious. There is no reason to rush into investing.

Have you done the 100-house rule? If not, why not? Even more important, if you have not, you are not ready to lay out money for property yet. You might find a property that needs $2500 of work with a good profit potential.

Also, even if you buy and fix this house, why sell it? It is low enough in value that it should be a good rental property.

You don’t talk about your investment approach, but if you have a job, doing rental proerties on a part time basis is fine.

Good InvestingRon Starr**********