I wanted to partner with an investor for a rehab, with the investor bringing in the cash and I’ll do the rehab and we split the money 50/50. My question is, are there still investors around that do this? I am really interested in doing a rehab, I just do not have the money.
There are lots of investors that will do that. As a matter of fact that is all I do. What I bring to the table is experience, I have rehabbed 100’s of properties. Both single family, multifamily, and commercial. But 50% is steep if all your doing is overseeing the rehab. Consider this, a real General Contractor will do the entire rehab for 20% over the cost of the entire rehab turn key. But that is just a small part.
Step 1: Due Diligence
· MLS comparable
· Neighborhood Demographics
· Contract Negotiations
· Exit Strategy Options
Step 2: Project Evaluation
* Property Walk through to discuss plans with the property
* Get Educated recommendations
* Verify any Hazardous Materials (i.e. asbestos)
Step 3: Construction Review
* Create Scope of Work
* Determine Realistic Budgets
* Line Item Estimate
* Calendar of Events
Step 4: Construction Oversight
* Contracts for contractors
* Negotiate Pricing with Contractors
* Check References for Contractors
* Review work by contractors
* Permit Review
* Confirm Licensing and Insurance
* Permit Review
* *Find Skilled Trades
* *Negotiate Problems with Contractors
Step 5: Design & Architecture
* 'As Is' Floor plans to send to contractors
* 'Optional' floor plans to increase salability
* Color suggestions
* Material suggestions
* Required drawings for city permits
Step 6: Project Summary
* Profit/ Loss Reports
Step 7: Marketing
* Determine who client is
* Manage Open Houses
* Manage Viewings
* Pre-Qualify Rental and Owner Finance Applicants
* Staging
So what parts are you going to do for your 50%? I am your competition and I will do all of that for 50% of the deal, if the deal is right, numbers work and I don’t have to acquire the financing. And remember I have 10yrs experience and 100’s of done deals under my belt.
Jeph
p.s. and if they don’t have the money but they have the house, I have 5 hard money lenders that I can get the deal done through as well for that same 50%.
Private investors are definitely out there and looking to partner with rehabbers (newspapers, google, family, realtors, R.E. clubs, are all good sources to find them).
I don’t know how much experience you have doing this sort of thing but I can assure you that an Investor will want to see some history on you in terms of your experience and capabilities. AND, very importantly, he’ll want to see a VERY DETAILED plan with up to date material and labor pricing, a gnat chart, Comps, average days on market to sell, and alternative exit strategies.
Also address issues like insurance, material/labor lien waivers, general asset protection (will you hold the property in an LLC?), etc. If you haven’t done a rehab before, use a professional GC for your first one, take notes, and expect to have much lower profits.
I’ve found it’s typically a little more profitable to use a HML rather than a 50/50 split, but I do both. It really depends on the specific deal and the HML lending rate/term/points/prepayment penalties etc. For example, if your Flip is expected to take a long time to complete (or your going to be selling out of the peak season with an expected long stay on the market) you’re probably better off using a Private Lender with a 50/50 split due to the carrying costs associated with an HML loan.
If you use a HML for the purchase and rehab keep in mind that, most of the time, they won’t give you the money for the repairs until after a portion of the repairs have been made – they typically disperse the money on a draw system (3 to 6 draws depending on the size of the project). So, you’ll have to have some up-front money to pay your contractors until you can get a draw (or have the contractors agree to wait until the first draw).
If you’re new at this, I know this sounds like a lot to digest and I don’t mean to turn you off. But for success sake, be thorough and detailed with the potential Private Lender and the project – it’s all worth it in end!
Good luck to you!
How would you go about structuring a deal where you and the contractor formed an LLC and purchased the house together.
The majority of the money would be fronted by the money partner
and the majority of the work done by the contractor…
i seem to hear alot from people getting into this type of deal.
This is specified when you draw up the Articles of Agreement for the LLC. You create a Member Managed LLC (in your own state - not Nevada) with a pre-determined life and with the appropriate percentage of ownership per member. You also have to get an EIN from the IRS and open a bank account that requires both signatures (this will save you the agony of post purchase arguments). You then draw up an official resolution that allows the LLC to borrow money from one of its’ members (very important that this be done to keep personal separate from the LLC). The LLC gives a promisory note to the member and the project house is held in the LLC’s name for personal AP purposes.
That is a VERY short and ify explanation. I highly recommend going to the Asset Protection Forum and posting an inquiry to the experts. You’ll find a lot of ideas in the numerous posts as well.