First meeting with a RE investor

[Bilgefisher]

tbsells,

good advice. I was planning on talking to investors they worked with, but professionals such as bankers, lawyers and title companies is also excellent advice. I will contact them as well.

What I have determined through my research so far, is these guys are established in Fort Collins. They have many deals in the works, and many other properties they currently own and rent or are trying to sell. Ive been to their office in oldtown Fort Collins. I have also been to the personal house of one the investors. (funny enough, but I actually checked the county appraisers office to make sure it was his residence.) These guys are legit in my opinion. There is another local RE investor that will be doing some jail time and will lose most of his properties because of the way he did business. That sticks in a lot of folks minds. I don't believe they would throw it all away by doing something shady.

There are still people I need to talk to, numbers to crunch and past successes to look at, but so far so good. Again I will keep folks posted on the progress.

 

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[tbsells]

Bilgefisher,
What's going on? Would you care to provide an update? I think this is an interesting thread.

 

[Bilgefisher]

Will do. I was meaning to provide an update soon. I have done a background check on these guys and their business. Everything checks out. My partner and I are pushing forward with this. We have a deal in the works right now. They hold the junior lien of a property and will redeem it this Friday. My partner and I will be going with them when they redeem.

My partner and I have formed an LLC and they have an LLC. Those two LLC's will form a joint LLC to do this deal. The property will be redeemed into the joint LLC.

-They will use a hard money loan 13% simple interest over 6 months. 1 1/2 points.
-That adds up to 143,000 cost to pick this property up.
-Expected 3k in additional costs. Listing, cleanup etc.
-The Holding costs will be 1430/mo.
-The house will be listed at 181,000 via a listing service. $500 for 6 months with 3 different agencies. (I have them in my notes)
-There is approximately 38,000 equity in the property.
-My partner and I will invest 19,000.
-When the property sells. The initial loan will be paid off, then our 19k, then the two LLC's split the remaining equity.
-Contract agreement will be signed by both parties.
-This house was built in 2005 and appears to be in good shape.

other notes: The house across the street. Same model and size just sold for 183,500 with 3 bidders. The winning bidder put in the bid amount, but stipulated will top any other bid by $500. New houses are being built in this neighborhood, but they start at 190k. They initially sold at 200k. With the downturn in the market they are selling for less. This is why we listing under other properties in the area for quick turn around. Both sides have agreed to this.

If the property sells immediately, were looking at: 181k-146k-19k=16k. 16k/2 = 8k for our portion. ~42% return.
If the property doesn't sell for 6 months 181k-146k-19k-(1430*6)=7.4k 7.4k/2=3.6k for our portion. ~ 19% return.

Both these numbers can vary downward if the buyer goes through a RE agent. 3% is $5400. Most of the deals they do, they do on their own and avoid the agent. But its still kept in mind. With 6 months holding and RE agent ~10.5% return.

The key here, were going to learn as much as possible. Thats the goal for this. While we want to make as much as possible, thats actually secondary to learning (within reason). We've done the math and research, now its time hold our breathe and jump into the water.

I will continue to update when I can. I actually like doing this because makes me evaluate everything again. As can be expected I'm nervous as hell on this first deal.

 

[nomadjanet]

Is your joint LLC the title owner to the property? If so, how is your joint LLC structured? Do you and your partner's LLC have the right of refusal & commitment or does it belong soley to the other investment group?
Janet

 

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[Bilgefisher]

The joint LLC will control the property and will be structured as partnership LLC. As far as the other question goes, we will be forwarding the document to a lawyer to review. We have had a couple trusted people review it and they have some questions on its wording. Again, excellent questions Janet.

My partner and I won't move forward without a lawyer looking into the legal aspects of this. If that means we miss out on this deal, so be it. There are other deals out there. Even if we don't move forward, its not a total loss. Ive learned so much in the last three weeks, its all worthwhile.

 

[Bilgefisher]

I sat down and talked with the investor today. We have an informal meeting every week at the foreclosure auction. We discussed all the questions I had with the operating agreement. He was very willing to change the agreement to what I asked for. Mostly some technical wording issues.

I have contacted two different lawyers and expect to hear back from them today.

We may have to come up with some creative financing on half of our portion of the deal. Please tell me if this idea holds water. My partner and I have formed an LLC and will be setting up a business account. To establish this we need to have our LLC, EIN, and our LLC operating agreement. We have all 3. When we establish the account it will set us up with a 20k line of credit. We use a portion of that line of credit to do this deal and pay it back over time. We will use a promissory note as written contract to pay the credit back.

The reason for this is partly twofold. We dropped the ball a bit and did not have money lined up for this right away. We have half the money lined up. My partners has over 30k equity in his house and would not be able to tap into that immediately. As I understand it, that would take 30 days to go through a refinance. This also allows us to use OPM for this deal and allow quicker access to the money needed.

 

[MJ DeMarco]

-The house will be listed at 181,000 via a listing service. $500 for 6 months with 3 different agencies. (I have them in my notes)

You mean the MLS? Or some other service? If it isn't in the MLS, it will be invisible to most.

 

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[Bilgefisher]

You mean the MLS? Or some other service? If it isn't in the MLS, it will be invisible to most.

yes, MLS. Sorry by listing service, I meant a company that will list on the MLS for us.

Just had an interesting meeting with the lawyer. My first time sitting down with a lawyer on RE investments. I was happy to know he does his own RE investments has several SFR and owns 88 apartment units.

He pretty much tore apart the operating agreement and nit picked it. I actually wanted him to do this. This lets me know all the things I missed and I can work with the investors on a lot of them. I have a full page of notes on his recommendations. 2 items he called deal crushers, but both items the investors are willing to change.

 

[AroundTheWorld]

I don't want to be a nay sayer here.....

but.....

(after a starter line like that, isn't there always going to be a but? )

I do have a few concerns - words of caution.

• Is now really the time to flip? What is happening in the Ft. Collins area SFR market? (I am assuming this is where you are looking at the house)
• You are interested in the Denver situation... how far away are you from there? Buying the houses that are cashflowing there makes more sense IMHO then flipping right now.
• How is your risk v. reward ratio looking on this deal?

 

[SteveO]

Interesting process by these investors. They are getting cash back on their financing by getting other investors to throw in cash. If the deal sells for 165K, they made their 19K and got it early. Will you get anything in this scenario?

Who pays the mortgage during the holding period?

Have you talked to any of the other investors that have put up money? Do you know what the average returns are that the investors are receiving?

 

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[SteveO]

Buy buying out the junior lien, if they decide to not obtain a property they are out the cost of that lien. They use a hard money loan when they purchase a house, if it sits and won't sell for over 3 months they finance it through a traditional lender.

The best I can tell from what has been posted here is that your investors will have all their costs (both loans) covered by the hard money loan. You then give them cash which is all the return that they actually need and they may be satisfied with the deal at this point. There is some more that could come to them if they hit the target sale price but at this point you are carrying the burden. Is this correct?

They don't actually have much of a risk by purchasing the note if they know what they are doing. The decision to plunk down money on their part means that they have done some homework already. Even if they are wrong, the investors (you) are giving them an instant profit. You have the risk if you are paying for the mortgage carry and if the sale price comes in low.

Feel free to shoot holes in my theory. I hope that I am wrong.

 

[MJ DeMarco]

yes, MLS. Sorry by listing service, I meant a company that will list on the MLS for us.

Just had an interesting meeting with the lawyer. My first time sitting down with a lawyer on RE investments. I was happy to know he does his own RE investments has several SFR and owns 88 apartment units.

He pretty much tore apart the operating agreement and nit picked it. I actually wanted him to do this. This lets me know all the things I missed and I can work with the investors on a lot of them. I have a full page of notes on his recommendations. 2 items he called deal crushers, but both items the investors are willing to change.

I wrote a post about this ... many deals are spun at Starbucks yet when the Operating Agreement arrives, it says different. These deals really have to be scrutinized by competent attorneys.

The best I can tell from what has been posted here is that your investors willl have all their costs (both loans) covered by the hard money loan. You then give them cash which is all the return that they actually need and they may be satisfied with the deal at this point. There is some more that could come to them if they hit the target sale price but at this point you are carrying the burden. Is this correct?

They don't actually have much of a risk by purchasing the note if they know what they are doing. The decision to plunk down money on their part means that they have done some homework already. Even if they are wrong, the investors (you) are giving them an instant profit. You have the risk if you are paying for the mortgage carry and if the sale price comes in low.

Feel free to shoot holes in my theory. I hope that I am wrong.

Great take Steve! As I wrote above, these investors are transferring risk -- at least that is how I interpreted it.

 

[phlgirl]

Sorry for chiming in so late - just took the time to read this thread.

I buy single family homes as well and we have done deals with JV partners - I have the following questions/comments:

• Have you contacted a realtor in the area and had a comparitive analysis done? It is great that the house accross the street sold for 183k but I would want to see several sales and I would also want to know what the Average Days on Market was for homes in this price range.
• Are they actually going to record your LLC's name on the deed? Or at least, make a note on the deed to say that you must be consulted prior to the sale of the home? Otherwise, my fear is that, IF the deal were not to be profitable, they could just sell the house themselves and cut you out of the deal. Sure, with the legal contract you have drawn up, you would have a case to fight for your investment back but how much $ in legal fees and how long does it take to get something like that thru court in your area? Might end up being 20k or more just to get there.... (so sad that it has come to this). The best way to avoid this is to ensure that you have a means of clouding the title. This makes it impossible for them to sell the house, without consulting you first.
• Is 143 the purchase price? Does this include closing costs and the points?

Great that you consulted an attorney and I think it is really smart that you talk to some other investors they have done deals with.... I know nothing about CO but the flipping scenario does seem to be getting harder and harder to accomplish (not my area of expertise).

 

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[Bilgefisher]

SteveO you and MJ hit it fairly square on the head. Also, phlgirl, I'm still very green in this field, but I have looked at other properties in the area. The hold time was 3 months for most. Seems to be about standard for Fort Collins. The other properties sold as new builds 2-3 years ago for 190-210k. Prices have fallen in the area, just like elsewhere. The property will be listed at 183. After the hard money loan and points, cost will be 146.

Ran into a wall today on this deal, on our end. We attempted to secure a line of credit with the bank on Friday. We were denied. We were both hoping to use that money to fund this deal. We have about 75% of the funds for this deal, but wanted to use the line of credit so we weren't tying up our funds. My partner needs half of his portion. So on to plan B or C.

Either my partner can secure the rest of the funds from family or we can try for a business loan. Gonna have to get back to yall on this. Slightly frustrating atm, but we'll keep pushing forward.

 

[mglshark]

The classic question is "can you give 3 people you done business with before that are willing to do business with you again?" - would have save me $$$$ many times over just following up on this

mgl

 

[Bilgefisher]

Well for better or for worse we have made the deal with the investors.

We formed a joint LLC between them and ourselves and special warranty deeded the property into the LLC. My partner and I have 51% and they have 49% of the LLC for dispute purposes. The property goes up on the mls tomorrow via a listing service. $350 for 6 months. My partner and I put in 15k for the deal of our own money and borrowed 4k with a 12% simple interest loan and 1.5 points ($60 for the 1.5 points and ~$1.32 a day interest). We would have liked to used business credit, but that didn't work as planned. We will be following phlgirl's advice on business credit though and are putting together a plan of action for that.

I want to thank everyone who gave input in this thread. I took it all to heart and listened to what you had to say. Many of the decisions I made were based on the feedback I received. In the end, we looked at the merits of the deal and moved forward. I will be sure to let everyone know how this deal turns out. For now I thought I would let everyone see it.

Mods, if you feel I need to remove the pics let me know. Not trying to sell it on here, just excited about my first deal.

 

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[camski]

CONGRATS! You got off the bench and are in the game. Even if it goes bad (not trying to be negative just making a point) you at least did something. Most people dream of hitting the winning shot but never even get in the game. YOU DID. I hope it works out just like you planned.

 

[Bilgefisher]

We are under contract with a buyer. I don't think I can give any more info then that, but I thought I would give yall a progress report.

 

[AroundTheWorld]

Congrats! I am happy for you that it is working out. You saw an opportunity, took action, and followed your instincts....

Here is to a solid buyer and a smooth closing!

 

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[Yankees338]

Agreed. Congrats! I was just gonna post, after reading some missed posts, that even if things don't work out, you're making progress by taking action just as camski said. Well, looks like it could turn out even better! Congrats. Good luck with the deal! Hope all works out well.

 

[tbsells]

Like the others I want to congratulate you for taking action. Also, for doing your due diligence first. Even better, it sounds like you are going to make money!

 

[Bilgefisher]

When we close on the deal. I'll let you know how the numbers came out. So it will be a few weeks. Pretty exciting though, were already talking about the next deal. Not sure how that will work near the holidays. The way I understand it, December through January are pretty poor selling months.

 

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[Yankees338]

When we close on the deal. I'll let you know how the numbers came out. So it will be a few weeks. Pretty exciting though, were already talking about the next deal. Not sure how that will work near the holidays. The way I understand it, December through January are pretty poor selling months.

Congrats again. Maybe it'd be better to sit those few months out then?

 

[reipro]

When we close on the deal. I'll let you know how the numbers came out. So it will be a few weeks. Pretty exciting though, were already talking about the next deal. Not sure how that will work near the holidays. The way I understand it, December through January are pretty poor selling months.

Bilge,

Dec and Jan do not have to be slow. Try these 2 ideas:

1) December Most people go out and buy what they want when they need it. They do not wait for Christmas when they want it. So why not play on the emotions of Christmas. Tell the couple they are buying the most awsome gift that they could ever buy. The home that they will live in together. What better Christams present could you ask for.

2) Jan. Are they expecting a tax refund? Start the year off right and show them how much a benefit it is to own a home Vs renting. Start the year off right with this great new home.

 

[Bilgefisher]

Bilge,

Dec and Jan do not have to be slow. Try these 2 ideas:

1) December Most people go out and buy what they want when they need it. They do not wait for Christmas when they want it. So why not play on the emotions of Christmas. Tell the couple they are buying the most awsome gift that they could ever buy. The home that they will live in together. What better Christams present could you ask for.

2) Jan. Are they expecting a tax refund? Start the year off right and show them how much a benefit it is to own a home Vs renting. Start the year off right with this great new home.

Just goes to show you, I need to learn so much more. Good input.

 

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[mglshark]

Like that end of year ideas -

We have a big out of state RE deal slowly coming to an end. A 6 month deal that went sideways tied up in court and now finally working out 2 1/2 years later. We are the bank in this deal; similar to being stuck in the back seat of a New York cab ride from hell! Should work out at the end. Anyway, when we get paid we are trying to reduce taxes, pushing some profit into next year for taxes. We also met with our tax guy that had some other ideas to spend the tax burden. Stuff I never thought of. Good idea to meet with him before the pay out.

Anyway I like the x mas present idea and Jan. tax relief. Good ideas. Think in the future for the closing date and how it impacts both buyers and sellers from tax view.


mglsharkson

 

[Bilgefisher]

Ok so its been awhile since I posted in this thread. We just closed 4 days ago. Total profit 3259.32. 140% return on our money. Well not entirely, we did put plenty of our time into this, but 140% still isn't bad. We closed on the 21st but do to California lender laws (which I need to read more) we were paid on 26th. Their lender was California based. Original close date was the 10th, it was pushed back due to the buyer missing some info and the lender waiting on a 2nd appraisal. Do to the crackdown on appraisal fraud and the difference in what we bought and sold the property for, they do a double check. That extra 17 days did cost us over $900 in holding costs.

1st deal is in the books, all I can say is wow. We didn't make as much as we had hoped, but we still made money and learned a whole bunch in the process.

Lessons Learned:
-Anyone can do this. The overall process really isn't that difficult, it can just be time consuming. Have your ducks in a row and be prepared adapt for contingencies and everything will be okay.

-Understanding all the costs involved in a deal. I can fully say I was completely unprepared for this part. My estimated merely included Hard Money payoff and Realtor commissions. I missed, judgment, cleaning, supplies, locksmith, minor repair, insurance, public trustee, utilities, listing, and recording fees. And most of all I missed closing costs and buyer appeasements. Its a wonder we made money at all. Now I have a spreadsheet detailing potential expenses to help gage potential profit.

-The investors we worked with made 22259. Not a bad deal for them, they got paid up front. Great guys, so I mean no ill mention of them. They have taught us a ton about RE. We simply miscalculated.

-Help out the buyer as much as you can getting them prepared for the lender. This deal was interesting in that the husband and wife were purchasing the house so she would have a place when they divorced. She let him look through all the paperwork and advice her. He left out some key things for her to do which greatly impacted the closing date. She was the buyer and we should have fed information more directly to her.

-Getting you feet wet is actually the hardest part. Jump in and learn, the worst that happens is you lose some money. If you learn from your mistakes you'll be making money in no time.

Looking Ahead
On our next deal we will be either purchasing on our own or purchasing through these guys, but not in this manner. I think an equity purchase is not a bad way to get into the field and learn from experienced investors. Before I started I didn't know what I didn't know. Now I know tons of things I don't know and thats half the battle. Learning what I don't know is easy. (Hope that made sense).

We have also talked with our investment partners on possibly consulting us on our next deal for a consultant fee. While I am 1000 times more confident now then I was 3 months ago, there are many hiccups that can be encountered. Having a life line would be comforting.

I look forward to doing a deal on my own now. I know I will learn much more that way as well. Its time to take the training wheels off.

 

[Yankees338]

Ok so its been awhile since I posted in this thread. We just closed 4 days ago. Total profit 3259.32. 140% return on our money. Well not entirely, we did put plenty of our time into this, but 140% still isn't bad. We closed on the 21st but do to California lender laws (which I need to read more) we were paid on 26th. Their lender was California based. Original close date was the 10th, it was pushed back due to the buyer missing some info and the lender waiting on a 2nd appraisal. Do to the crackdown on appraisal fraud and the difference in what we bought and sold the property for, they do a double check. That extra 17 days did cost us over $900 in holding costs.

1st deal is in the books, all I can say is wow. We didn't make as much as we had hoped, but we still made money and learned a whole bunch in the process.

Lessons Learned:
-Anyone can do this. The overall process really isn't that difficult, it can just be time consuming. Have your ducks in a row and be prepared adapt for contingencies and everything will be okay.

-Understanding all the costs involved in a deal. I can fully say I was completely unprepared for this part. My estimated merely included Hard Money payoff and Realtor commissions. I missed, judgment, cleaning, supplies, locksmith, minor repair, insurance, public trustee, utilities, listing, and recording fees. And most of all I missed closing costs and buyer appeasements. Its a wonder we made money at all. Now I have a spreadsheet detailing potential expenses to help gage potential profit.

-The investors we worked with made 22259. Not a bad deal for them, they got paid up front. Great guys, so I mean no ill mention of them. They have taught us a ton about RE. We simply miscalculated.

-Help out the buyer as much as you can getting them prepared for the lender. This deal was interesting in that the husband and wife were purchasing the house so she would have a place when they divorced. She let him look through all the paperwork and advice her. He left out some key things for her to do which greatly impacted the closing date. She was the buyer and we should have fed information more directly to her.

-Getting you feet wet is actually the hardest part. Jump in and learn, the worst that happens is you lose some money. If you learn from your mistakes you'll be making money in no time.

Looking Ahead
On our next deal we will be either purchasing on our own or purchasing through these guys, but not in this manner. I think an equity purchase is not a bad way to get into the field and learn from experienced investors. Before I started I didn't know what I didn't know. Now I know tons of things I don't know and thats half the battle. Learning what I don't know is easy. (Hope that made sense).

We have also talked with our investment partners on possibly consulting us on our next deal for a consultant fee. While I am 1000 times more confident now then I was 3 months ago, there are many hiccups that can be encountered. Having a life line would be comforting.

I look forward to doing a deal on my own now. I know I will learn much more that way as well. Its time to take the training wheels off.

Congrats big time on closing! I'd say you made out pretty damn well. Making money was just the icing on the cake, but the experience of actually TAKING ACTION is priceless. Once you get the ball rolling, I have a feeling that things only become easier. Good luck in the future and thanks for keeping us posted! It's great to hear about progress.

 

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[andviv]

are you missing a digit in your profit number?
If I read this thread correctly before, you put 15K of your money, so I am assuming you got back more than 30K, not 3K.
In any case, congratulations for your success.

 

[Yankees338]

are you missing a digit in your profit number?
If I read this thread correctly before, you put 15K of your money, so I am assuming you got back more than 30K, not 3K.
In any case, congratulations for your success.

I think it was a $3,259.32 PROFIT, so that was after being paid back the original investment. At least that's how I understood this.