Posted by JoeKaiser on April 12, 1999 at 22:52:12:
Bill,
Wholesale or retail, I think you’re save still calling it a flip.
Joe
My favorite no money down approach on buy and hold multi-family - Posted by Mike Oldfield
Posted by Mike Oldfield on April 12, 1999 at 04:12:56:
Several years ago when I did my 1st 203k deal, I had to fill out FHA’s Specification of Repairs worksheet (Newbie at the time) I had no idea how to estimate repairs (I have since founded a remodeling company NO MONEY DOWN) This form being rather cumbersome was intimidating at the time with my lack of estimating knowledge. So what’s a small town boy to do.
I called FHA. “How do you determine what a reasonable cost is for a given repair?” I ask. They (FHA) say we use the Means catalogue (Means is actually not a catalogue at all). I pretended I knew what they meant so they wouldn’t think I was an idiot. (Back before I owned 125 rental units, 3 motels, 2 trailer parks, and a construction company I used to care what other people thought of me)
When I got off the phone, I called the bookstore. Do you have the Means catalogue, Yes we do Etc. Went and bought it. Filled out the form for FHA 203k Deal closes get all my money back, pocket $15,000 few months later. WHooaa!
Here’s how it works. Bank uses (proper term is not catalogue) National Construction Cost Estimating books published by R.S. Means (There are several different types) or National Construction Estimator published by Craftsman Books (There are again several) to determine reasonable cost of repairs. This is hilarious because these books are so UNREASONABLE that they make me blush.
Example 20 square roof
Estimate from book $5000
Actual Cost $1500
Example New 75,000 btu boiler
Estimate from book $7800
Actual Cost #1600
Now watch this.
You find a classic fixer upper, the worse the better to a limit of course. Put together what I call of Schedule of Repairs Worksheeet. Probably misnamed because there is actually little work involved. This “work” sheet lists all the repairs with book costs that you plan to make, professionally typed with reference to your source (adds much creditbility). You go to the bank get a loan based on the aquisition cost plus the fix up costs (book value) They loan you 75% of that amount. Guess what students. 75% of that amount is more than you ACTUAL COSTS FOR AQUISITION AND FIX UP. YOU CAN PUT MONEY IN YOUR POCKET EVERY TIME YOU GET A DRAW FROM ESCROW.
For all you naysayers out there. I have done this over and over and over.
I am using the same cost book as the bank is using to verify the fix up costs. It works. Don’t overlook it. This is truly my favorite approach.
By the way, I specialize mostly in buy and hold multi-family, mom & pop motels and trailer park investments although I do buy paper through my IRA, and create mobile home notes. I have never quick-flipped a deal because I think this approach is a collosul waste of precious investment time. Hey friends… Each to his own.
Good luck.
MIke Oldfield
Re: My favorite no money down approach on buy and hold multi-family - Posted by Tracy
Posted by Tracy on April 13, 1999 at 09:36:56:
So Mike, to make sure I understand what your saying, I’m new to this real-estate game. I am trying to buy a 2 family flat to fix up, so in order for the bank to loan me money, I should give an estimated list of repairs with the estimates coming from the N.C.C.E as well as an offer to purchase an REO. But make sure I have a contractor for invoices on repairs? Please explain if I missed something.
Thanking you in advance.
Re: My favorite no money down approach on buy and hold multi-family - Posted by BankRobber
Posted by BankRobber on April 12, 1999 at 22:19:05:
thanks for the advise,
a couple of thoughts:
- 203k was the “lesser of” either the after rehab value or the total of the acquisition cost plus repair costs (yes, you made it clear that you have not done a 203k loan since the investor portion was dicontinued), I would think your bank has a similar criteria, and that this critera would make it difficult to reach the “no money down” status.
- you must be getting favorable terms (low interest rate, etc…) from your bank on the rehab loan. This is usually not possible on rehab loans, often it requires a second (takeout) loan for permanent financing. (If you have to get a second loan for permanent financing, then what is the point of all the smoke and mirrors?)
Re: My favorite no money down approach on buy and hold multi-family - Posted by Dave T
Posted by Dave T on April 12, 1999 at 21:26:50:
What program are you using now to do the deal you describe? I thought 203k is unavailable to investors
“Quick Flips” A Colossal Waste of Time? - Posted by Bill K. (AZ)
Posted by Bill K. (AZ) on April 12, 1999 at 17:37:43:
Mike,
I’ve seen a couple of your posts that state “quick flips are a colossal waste of precious investment time”. Could you please explain why you think so?
I’m about to buy a property worth $105,000 for $72,000. What’s wrong with walking away with $30K in this deal? I have no J-O-B, and bills to pay today. I would think that “buying and holding” versus “quick flipping” depends on individual situations.
Sincerely,
Bill K. (AZ)
ethics question - Posted by Bud Branstetter
Posted by Bud Branstetter on April 12, 1999 at 17:16:17:
How do you address the legalities of the “kickback” on repairs? Are you reporting the income for the referrals?
Re: Fav No Money Down - Posted by Troy M
Posted by Troy M on April 12, 1999 at 07:24:36:
Mike,
I love the appoach. I have a similar arrangement w/ my bank, they loan 80% of purchase + repair costs, and they took my word on the repair estimates. Unfortunately, I estimated repairs pretty close, so I’m still out of pocket the 20%. My question is How do you work the draws from the bank? My bank requires receipts and/or paid invoices.
Thanks,
Troy M
Re: My favorite no money down approach on buy and hold multi-family - Posted by CarolFL
Posted by CarolFL on April 12, 1999 at 07:14:51:
Mike, thanks for the info on getting over the costing hurdle - but where are you getting 203K loans these days as an investor? Since their discontinuation over a year ago, I have been keeping my eye on the Fannie Mae product which is supposed to be coming out, but without much success.
Would appreciate any guidance on which “rock” to look under.
Thanks.
Carol
Re: My favorite no money down approach on buy and hold multi-family - Posted by Mike Oldfield
Posted by Mike Oldfield on April 12, 1999 at 22:46:15:
Right 203k is discontinued.
Go back and reread the post more slowly.
Money can come from private investor or commercial bank. I say that I stumbled across the idea when I was using 203k several years ago
Good LUck
Mike Oldfield
Re: “Quick Flips” A Colossal Waste of Time? - Posted by David Alexander
Posted by David Alexander on April 12, 1999 at 18:19:33:
You can flip Wholesale or Retail, personally I think going retail is better, if you can. You get all the pie, but that depends on time, if it costs you more time and money for the retail sale, maybe the quick wholesale deal would be better. As far as getting all cash depends on where your are in your Investment career, do you need the cash flow, because if you continually go after all cash and don’t reinvest into things that produce passive cash flow, you ultimately have a job, albiet a high paying one it is still a job.
David Alexander
Re: “Quick Flips” A Colossal Waste of Time? - Posted by Bassman
Posted by Bassman on April 12, 1999 at 17:58:47:
Bill ,
if house is worth 105k , your getting for 72k , who are you “flipping” to and making 30k .
Dont you mean you are retailing it for 105k and making 30k ? If this was a flip , where does the person , your flipping to make money?
Just a thought
Re: Fav No Money Down - Posted by Mike Oldfield
Posted by Mike Oldfield on April 12, 1999 at 07:49:53:
Great question. I have setup a contracting company with associates (fellow investors) We invoice me for the full materials, labor, overhead and profit. (Instead of just material) I get paid by the contracting company for bringing in the business. The amount? All of the money except for the materials of course. Pretty Neat Huh.
Rule of thumb that should help if you are doing all the work yourself. Estimate all of the material cost required for your project and multiply by 3 (4 if you can present to the bank without blushing Haha)
One more thing. If your bank is a pain in the *&^%$&^% Then go to a different bank. My bank never asks for reciepts all they do is inspect and they pay the amount on my Schedule of repairs. After all this is what they based the loan on. You Know why they dont ask for receipts? I told them that sometimes I get a better deal on labor after the loan closes (if they only knew how good) so I will use the extra for more improvements, thereby adding more security for the banks mortgage. Think on your feet. Isnt this a blast! I Love real estate, especially the properties that need work. Now the newbies know why!
Good Luck, Write Anytime
Mike Oldfield
Re: My favorite no money down approach on buy and hold multi-family - Posted by Mike Oldfield
Posted by Mike Oldfield on April 12, 1999 at 07:32:15:
Read carefully my friend. (I think) Did I write that this was several years ago. I have not done 203k since they discontinued.
THE BEST PART - YOU DONT NEED IT
With my approach the 203k approach stinks. If they reinstated the program tommorrow, I would still go my way every time. Why? Simple. It’s Easier. Fewer hassles. GO back and read carefully. With my approach you have created YOUR OWN 203K program without all the burden.
My Schedule of Repairs Worksheet is the substitute Specification of Repairs from the 203k program. Everything else is based on getting the loan based on fixed up value. The bank has always been happy to loan me 75% of the aquisition plus fix up cost (book) estimate). I always make a point of accompanying the bank appraiser to explain the fix up project and with a little charm and enthusiasm he puts the appraisal where it needs to be to make the deal fly. Otherwise the bank wouldnt call him because he or she keeps killing deals.
I love you dear but get 203k out of your head. YOU DONT NEED IT. You will like my approach so much better.
Less Paperwork, Much Faster. If you did 203k deals then you can smoke thru this new way. I will help you any way I can. I am working on a deal like this right now.
Good luck, Write Anytime
Mike Oldfield
Re: “Quick Flips” A Colossal Waste of Time? - Posted by Bill K. (AZ)
Posted by Bill K. (AZ) on April 12, 1999 at 18:26:57:
David,
Thanks for the response.
Since I’m new to investing, I’m trying to build up some savings to pay bills. Eventually, I intend to “buy and hold” some of my properties for continuous cash flow.
That’s what I meant when I asked if it really was a colossal waste of time to “quick flip”. It seems like it depends on where you are in your investing career. Sometimes you need immediate cash, and other times you need cash flow from “buy and hold” properties.
Good luck with your investing.
Bill K. (AZ)
Re: “Quick Flips” A Colossal Waste of Time? - Posted by Bill K. (AZ)
Posted by Bill K. (AZ) on April 12, 1999 at 18:12:35:
Bassman,
Oooohhhh! Thanks. I think I understand. I’m using 2 different terms interchangeably.
I “flip” to another investor, but “retail” to the ultimate buyer.
Since I am planning to retail this property “quickly”, I was thinking that it was a “quick flip”.
If I could find an investor who would take this place off of my hands quickly, I’d probably consider it since I have bills to pay. So, my question still stands. Why are “quick flips” are a colossal waste of time? Doesn’t that depend on individual circumstances?
Thanks for helping to clarify.
Bill K. (AZ)
Re: “Quick Flips” A Colossal Waste of Time? - Posted by Tyler
Posted by Tyler on April 13, 1999 at 20:28:49:
Just to clarify, you don’t need to “buy and hold” properties to create cash flow. You can create nice cash flow with L/O’s without ever “buying” a thing.
You can also create nice cash flow through notes and MH’s, just to name a few.
You’re right about flipping…it does depend on your time, resources, knowledge, willingness to take on risk, and…what your cash needs of TODAY are. Always take care of todays bills before you worry about creating cash flow.
Good luck, Bill!
NT