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[VIEWER QUESTION] My Realtor wants me to buy him a fixer upper? Should I?


Alright everyone it’s Dave Barnett from the
investlocalbook.com blog site, as you know we have been answering questions over the
last few weeks and this week I have a question that involves real estate flipping houses,
so since I have access to an expert on the topic I figured that I would do a Google Hangout
and bring in some expert advice for her Here is Brian’s question. I have a local realtor
wanting me to invest in a fixer-upper, 15% return on my money when the house is sold.
The house is in my name until sold. I look at the house before its purchase. I know the
contractors location etc. What else would I need to watch for in one of these deals.
That’s the question from Brian. Now before I give my take on it let me introduce Darlene
Smith. Darlene you are a an expert coach and speaker on the topic of flipping real estate
and you actually worked with an organization called Fortune Builders and you fly all over
North America all the time. You were recently in San Diego, you’re going to Hamilton Ontario
this weekend all kinds of places like that. As far as my take on this worst-case scenario,
this guy can end up owning a half-renovated house right ? Darlene
1:25 That’s correct Dave. You know one of the things it looks like that they’re needed
some help it looks like for the realtors is looking for some funding as a private lender
and going to pay a good return 15% correct. You want to make sure you’re in first position
on the house. To own the house after the foreclose would be the worst case scenario that would
happen and that’s what not what we want to happen. The other thing is you also want to
make sure that you know this guy has some experience in doing this and I’d want to have
an idea as to what the numbers are kind of we call analyze the deal. You know what money
are they putting into renovations also too what are they looking to get for it at the
end, cause sometimes you know you can put all kinds of money into the property, but
if the market price can’t support the price then you could be in a scenario where you’re
not making any money and it could be a little challenging. Dave:
2:18 So you know to understand what you’re talking about what you actually need to start
with is the end. You know what if we look at the market what are we likely to be able
to sell the house for once all the renovations have been done then work backwards and say
this is our budget for the renovations and this is the you know, the profit that we’re
going to offer to you Brian and this is what you’re going to pay for the house and all
those numbers have to work backwards, is that what I’m hearing? Darlene:
Yeah, that’s right because basically you know we talk about what is going to be the exit
strategy, and the exit strategy is to sell it for X amount of dollars basically if you
do a great job on the renovations and you want to get top dollar, extra value that’s
right. You’ve got to be able to put the money into the house that it needs and that and
basically you know, when real estate you make the money when you buy. If they can’t buy
the property at the right price then it’s going to be challenging to make sure they
make profit so that’s what the realtors looking. He’s basically saying, hey I’m helping you
to sell part of the of the deal and I’m going to be successful at this because I’ve done
all my work, and one of the other things you want to look at, we call it a scope of work
is to make sure you’ve analyzed there’s no red flags, no big surprises in the house as
far as a renovation is going on concerned. Dave:
So based on this question the fact that the realtor wants him to buy the house and the
realtors is offering him a fixed rated return. It looks like the realtor is trying to be
the house flipper and is looking for this guy to basically finance the biggest component
of the project which is the house itself. But the realtor is offering to let Brian have
the house in his name as oppose to being a first lien you know mortgage lender on it.
Would ownership cause any issues in your mind or is that even better than being first position
mortgage owner? Darlene:
Well it is better because you have title to the property but that’s not normally how we
teach it. Basically the person who’s going to be flipping the house or renovating it,
the property would go in their name correct because they basically have total control
you know. First lien position just means you have a financial interest. It’s more protection
for him but you know, I’d be kind of curious as to what the situation is. Now maybe it
is a case of if the gentleman is a realtor maybe its protection for him you know dealing
with the real estate board and everything else that he’s protecting himself not having
the property in his name having it in somebody else. So he doesn’t get you know concerns
from his real estate board that you know, he’s buying this property not putting it through
the MLS things like. So that could be an angle as well. Dave:
Okay, okay so I mean my worst case scenarios is that I first thought of when I read this
question is that the if the realtor doesn’t know what he is doing and spends a bunch of
money with contractors who are incompetent, the job can get half-done and then Brian would
end up being the owner of a houses that is half renovated and some of these contractors
could actually put mechanic’s liens if they weren’t paid for the project. So the worst
case scenarios is he could end up with the house that is half renovated barely in saleable
condition whose title has then been messed up with these contractor liens. Right? Darlene
That’s correct and that’s where you run into a lot a lot of problems if you don’t document
use proper paperwork, cause contractor is correct. If they’re not paid that’s where
the title gets you know messed up and it becomes very challenging. I mean you know, one thing
that we teach is you’re doing the right thing making sure contractors get paid, making sure
too we use the right paperwork so that you know everybody signed off so this can’t happen.
You know we call it a lien waiver, so contractors are paid, it signed off a waiver and you know
it’s just that sometimes you know it seems too good to be true in some, I would kind
of look at it alright what what’s the scenario what’s this guys experience in this. This
is how it’s normally done property, is this is first flip. So a few more questions that
I would have before I would you know be signing on the dotted line. Dave:
So you know I don’t know anything about Brian other than this question, but I’m assuming
that if we’re talking about Brian purchasing a house and he probably has some net worth
in the order you know of 100 to 150 grand that he can put into one of these deals. In
a marketplace where you know where we are in where and you where nice house is going
to be in the what $175 to $200 range would a person with that kind of capital be able
to have a good flipping business if they follow a proper procedure in Road map to successfully
like the one that you work with? Darlene:
Yeah, no question, you know if you’re doing everything in the right way buying it right,
knowing how to put the systems in place, protecting yourself and everybody involved yes. You know
one of the things too from a financing point of view is normally you know as a private
lender we would not finance 100% of the deal. Normally it is like 75 %. So is the property,
if you had to buy it say for 100,000 then you know, Brian would be putting in 75,000
right so that the other person has some skin in the game has some equity. Now can you finance
100%? Sure you can as the as the lender you’re just kind of put yourself in a little big
risk, and one other things I’d want to be doing with Brian too is recommending is let’s
do some draws like you know, if you’re doing the property and you’re doing the renovations,
let’s just get the property purchased first. Don’t give all the renovation money up front
you know, you need to protect we call it you know staying ahead of work and behind on money. Dave:
Yeah from the way the question is phrased thou I don’t think he’s being asked to put
up any renovation money, I think he is just being asked to purchase and hold the house.
So I don’t think there is an opportunity for him to actually put out more than the house
is initially purchased for, but yeah, Darlene look like new screen share here cause I call
up your web page. Darlene
Oh wow, don’t you love technology Dave? Dave:
Yeah I do. Let’s see here talk about fortune builders and the work that you do with them. Darlene
Sure, Fortune started in the United States and I’m actually their first Canadian student
and a couple years ago I don’t know they’d brought their brand to Canada and I don’t
know if you ever watch that A&E Show Flip This House Dave:
Yeah I remember that they were down in New England somewhere? Darlene:
Yeah they originally started in Connecticut and from San Diego and you know these guys
have flipped over 1,000 houses and so they’ve taken their system and more or less of you
know educating people across North America. So I’ve been very fortunate to join them now
on the coaching staff and I basically head up the Canadian division where you’re right,
I travel across the country training new entrepreneurs people looking to do this business whether
it is flipping, buy and holds and it is cool so it’s great fun to be able to give back
to the community. I feel really honored to work with my mentors because and Paul from
CD homes are my mentors and wow what an opportunity to work and coach and you know it doesn’t
get better than this helping people improve their lives and start their own business and
little bit of a I call it a little bit of life coaching in there too. I’ve met some
awesome people across North America. Dave;
Alright then thanks Darlene for taking some time to talking with me today because I knew
this question was right up your ally and it is your whole life right now. It basically
helping people through these kind of investments so I thought it was a great opportunity to
have you on my channel. Thanks a lot and have a great time in Hamilton this weekend. Darlene
Alright, thanks Dave, it’s always a pleasure and glad I could help out and good luck with
your flip. Dave:
Thanks we will wish Brian good luck with this. I’m not into flipping houses. Darlene:
You’re not into flipping okay leave it to us, alright Dave. Dave:
Alright bye, bye Darlene:
Bye bye.

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