passive investor question - Posted by Dan

Posted by Dan on September 20, 2004 at 13:27:10:

Thanks for the input. For the $90,000 ARV, I used recent area comps. I feel good about that number - came up with a range of $90,000-$100,000 and I was being conservative using the $90,000. So the loan was already at 67% ARV, now another $10,000 will put us up around 78% ARV. I hate to adjust the ARV now into the project just to justify extra spending.

I have not asked him to provide me evidence of the expenses to date, perhaps thats what I could do and if I feel okay that they look legit approve the rest. I just don’t want to get in too deep, and if I need to cut losses cut them early. He said he will start to market the home as is anyway and see how that goes.

passive investor question - Posted by Dan

Posted by Dan on September 19, 2004 at 17:23:00:

Three months ago I decided to get my feet wet in real estate investing by making a loan with a rehabber. He presented me with a project with a house for sale for $40,000, estimated repairs of $20,000 and and ARV of $90,000. He is an experienced rehabber so I lent him the $60,000. Now he has come to me saying repairs are more than he expected and he needs another $10,000 but has adjusted the ARV to $110,000 - which I disagree with, I think $90,000 is a good number.

My initial response was no and to find another way to finish the deal. What are others’ thoughts on what I should do. I hate to throw more money at this, but I also don’t want to leave him in a position where he can’t successfully complete the job. Thoughts?

Re: passive investor question - Posted by Randy (SD)

Posted by Randy (SD) on September 20, 2004 at 09:33:52:

As the great communicator Ronald Reagan once said “trust but verify”. So you?re experienced rehabber “under estimated” the rehab costs (normal course of business) and potentially under estimated the ARV… (Not too surprising). Will withholding additional funds result in an incomplete or shoddy project? If so you know the answer to your question, have you documented the expenses so far? How did you determine the $90,000 ARV? If the numbers are legitimate get your checkbook.