My boss being a very successful entrepreneur came up to me today and asked if i had any interest investing in the Hamptons on Long Island. He owns a home in South Hampton that has been getting offers for 1.3 million and hes on .5 acre. He said there is a house down the block on the same lot for 600,000. His plan is to buy and bulldoze the home and put up a new one for 400,000 and try to flip it for 1.2 million. He offered me in on the deal, withotu knowing any else about the deal, what do you guys think?
I’ll keep everyone posted as we find properties to do this to… but for now any advice? How to get the mortgage for the right amount? Can I take out more money then needed to hold us over on the months that we dont sell?
Preconstruction mortgages are a different type of funding. The bank will base the loan on the appraisal value as if the home was completed today. Depending on the bank, so will use appraisal for the LTV and others will use the actually purchase price. You will get paid in the form of draws as work is completed and the bank verifies work is done so you will need some cash of your own many times unless your dealing with a major builder.
As for the market, even the Hamptons has to see some slowing…Most real estate in that price range is is appraised for at least 10-15% in todays market, so be careful
I agree with yrush, this is very risky. I would not do such a risky deal (especially for your first deal). The risks are very high and the reward is relatively low. I would look for a sure thing. Also, if your boss is new to REI, I don’t think that’s a good match either. Two newbies does not make for a good team.
Good Luck,
Mike
Can you elaborate a little bit on why it is so risky? If he has a home around the block that has been getting offers at 1.3 million and we put a larger home on the plot, why would it be super risky?
Well for one your costs are already 83.3% of the estimated ARV. Your quiet costs and holding costs are probably going to eat up all of your profit or more. Couple that with a slowing market that may lower the eventual sale price and you have a ticking time bomb.
Ok well then I am all out of ideas, it seems that every time i try to enter a strategy for investing it gets shot down.
It’s been confirmed by many people at my Local investing clubs forum that it is next to impossible to cash flow out here and the time/reward is very small. So i then decided to rehab and was shot down that you never wanan rehab in a declining market, and then i said id wholesale and that was shot down too as people told me that its gonna be hard to flip properties to rehabbers in the current market.
can someone please help me, I am sure everyone knows ive been here forever and still havent gotten able to close deals. Ideally id love to wholesale a bunch in the beginnign to raise capital…
Please advise
Its not that you can’t make money rehabbing in a declining market, you just can’t buy for full retail value. You need to find a distressed seller that is willing to sell cheap enough that you can make money. You make money when you buy, not when you sell.
Rich, maybe you can help me since your in CT. I am looking to network with seasoned investors in the tri-state area. I am hooked up with Press|Cuozzo in Hamden, CT to find me investment properties in Hamden/New Haven. I would love to be able to learn from your success a little in the CT area.
Thanks
Have you thought taking a trip to check out that house in New Haven? If you could negotiate the price a little lower it could work out to be a good rental or possibly a good rehab for you. From what I could see it mostly needed cosmetics and you could easily do it with little experience. I haven’t seen the house in person so who knows if there are issues with it structurally or mechanically but a good home inspector can tell you that if you decide to go ahead with the purchase. At the very least getting out to check it out in person would be a good move and give you a little hands on experience. It will be worth the ferry ride and the gas.
JP,
I’ve got a couple of questions for you.
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You hinted that you’ve been attending your local investing clubs. Are there any successful full-time investors there? If so, what are they doing to be successful?
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Besides looking on the internet, what specifically have YOU done to find deals that will cash flow?
Mike
I think I am going to start bird dogging for investors on the island. I was contacted by one who said if I can find him rehab properties he will pay anywhere between 3-5k per deal. I am thinking this will be a great way to get started, and learning the market and getting past the whole “first deal syndrome”.
My plan is to get the newspapers on Sunday and start just callign every FSBO that is there and trying to find the real deals. The guy said hes looking for homes in the middle of the block of good neighborhoods. My goal is once i get confident in this I may begin to start wholesaling the properties becaues its just a little more risk due to me having to go into contract. And then the natural progrssion after that would be rehabs myself and eventually rental income on properties that i flipped.
Remember to find the crappest house on the block, thats the best deal. But you will find better deals driving around or checking out the PennySaver over the newspaper.
Team up with a local realtor that knows the market and understands what your doing, someone that invest themselves, does not mind giving lowball offers that will offend the seller, etc…
I am a firm believer in, if your not afraid to make the offer, you offered to much money.
Why does your boss need you in the deal? What are you bringing to the table?
It is my understanding that you can buy good pies at roadside stands in the Hamptons.
Cause id be cutting his risk in half…and plus some people are nice guys and feel they wanna share some good deals with others
Risk? What risk? I don’t know of any reason to ever do a real estate deal that is risky. There are people in your town that do deals every month and make money on each deal. I advise you to do the same thing they are doing and don’t do some speculative venture that may or may not make money.
Making money in real estate is so easy even a caveman can do it. But real estate is not sexy and you don’t hit homeruns. You get a lot of singles and a few doubles but I would not try to hit a lead off homer.
Also supposed your boss messes up the deal? Are you prepared to sue him? You should never do business with someone that you can’t sue…because you may have to.
And some guys are scammers and want to make a fortune using others people money and credit to minimize risk…
Whoa!!!
I to have heard some horror stories about this sort of thing. I would do a lot of research first. Due dilligence is key