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this seems extremely unlikely to me. Buy $1M house for $800k, make $25k in renovations, then sell for $1M-$1.2M ???
It does to me also especially in a resort setting.
Wall Street regularly stalks these areas which is where they are investing. Hedge funds come in a snap up these deals before they ever come on the market.
Wonder why an owner just wants to basically give him $400K?
I spent from 1972 till I finally retired as an investment real estate broker. I handled clients more like a stock broker does. Buying, selling, and exchanging for clients over and over again do I know a little about real estate investing. I put together a number of syndications.
From information given by the OP, I would not touch his deal for anything.
The seller wants cash, but that can easily be covered with a mortgage. Any intelligent investor with half down, with the ability to go for a loan, would not want to go in as a partner but to keep the big profit he thinks will happen himself. If he cannot get mortgage on the property would mean one of two things. He is not capable of getting a loan even with half down due to his bad financial record. If that is the reason, no intelligent person would want to put up $400,000 cash. The other reason, is it is not the good property he claims it to be, and the bank simply will not loan on it. Again no intelligent investor is going to put up $400,000 cash.
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I own several properties that have either long term renters, or are vacation rentals. They break even or in the case of one vacation property, it generates a nice profit after expenses.
When someone has a number of long term or vacation rentals that break even, it is a guarantee that person is not a sophisticated investor.
The way to judge an investment is the TOTAL RETURN ON INVESTED DOLLARS. It takes into consideration the Cash Flow Return, the Amortization Return, the Tax Benefit Return, and Any reasonable Appreciation Return. These returns are based on the actual money invested.
In early 1980s, the Wall Street Journal had a front page article about how the TRID is the only way to evaluate an income property. It is taught in schools and in books since then. I know how it works as I was the one that developed the form used to determine the TRID and it was first published in 1977 in a professional magazine The Real Estate News and Observer, when it was made available to the world with no copyright on the form.
Break even income property, is the worst investment a person can make. It does not leave any money available to handle future problems, increases in taxes and etc. It indicates the person that owns them, does not really understand real estate investments and is buying properties no one else wants.
There was a lot of that type of owners buying income property back before the big bubble burst. They were suddenly having to feed the property out of their pocket, and a lot of them ended up foreclosed on. Anytime an income property will not give a positive cash flow and a good TRID, run, don't walk away from it, or when the next recession hits you can be in a lot of trouble.
So you aren't planning on flipping it until the market goes up? What if it goes down?
Must be a nice place as $20k-25k doesn't go very far depending on the size of the home which all potential investors still don't know. Also, what city are we talking here, or at least get us close
FYI the most expensive house that I flipped was purchased for $1.9 mil in San Francisco so I do have knowledge in this arena.
As I mentioned, the market going way down or even the economy taking a big hit would certainly effect things. However communities like this are more immune to smaller fluctuations, with a limited inventory and it being highly desirable. Even after the housing bubble, these places did not sell inexpensively, people just held on to them.
Two places in a nearby community have just had their listing price bump up, because the market is doing well. Heck one condo that is a foreclosure upped their asking price by 8% because so few large oceanfront places are in inventory.
This is an 2400 sq ft + oceanfront unit with few places like it ( only 9 that I know of) that do not typically come on the market.
When they have, they do not last long unless the person asks too much. For example, one that is not as desirable a floor plan with 300 sq ft less, has a contract on it for just under $1 million.
Moderator cut: advertising Lets face it, anyone that is a potential investor is going to want market research, have their own attorney, see the place, etc.
I am not some fly by night scam artist, just looking for places to find real estate investors.
BTW - Thanks for the website, as I am going to sign up tonight. It looks like the type of place that could fit the bill.
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Originally Posted by br1n
this seems extremely unlikely to me. Buy $1M house for $800k, make $25k in renovations, then sell for $1M-$1.2M ???
I get the skepticism, but that is part of the reason I want to snag this place before the family invests time and money into it, then puts it on the market for a premium price. My impression is that they are fairly wealthy and involved in their lives on the west coast. There would be value to them to make a quick sale and not worry about any of the aforementioned tasks.
[As an FYI, the one place that I own as a vacation rental nearby was speculated by naysayers as "too good to be true, and would never even cover the costs, much less make a profit". I picked it up for $450k in a private sale. Just 4 years later it is valued at $150k more than what I paid, and it has made a profit every single year. Granted I market it to high end vacationers, but the location and resort help to sell it]
Also, when I am talking about renovations, it is low because the place is fairly updated with all 3 1/2 bathrooms already being done. The kitchen will need a new frig and dishwasher, but I am not going to be putting Viking type of appliances. A new owner might want to change out the counter tops and cabinets, but what is in there is nice.
The only other glaring thing it needs is new flooring in 2 of the 3 bedrooms. Other than that the place would be ready to rent. I would also redo the two wooden decks outside the bedrooms, but that is work I'd do myself, and the supplies are not expensive.
Anyway, I am not expecting a CD poster to be looking to get in on this because it will take someone looking to invest a sizable amount of money that they have liquid. Still some of you might be wealthy enough, or more likely know of people who are looking for some type of a return on their money above the anemic 0.79%.
Many (like myself) do not feel safe in the stock market, and can have a tangible asset by owning a oceanfront resort villa they can stay in a few times per year. Heck as a perk, I'd let them stay in my other one for free, since this one will rent for even more. Plus it comes with a built in manager/marketer with a proven track record.
OP, to answer your question partly, they don't find them on CD.
JV partnerships on property always full of surprises. Who's fronting what cash, how much to keep on hand, who gets the management fee etc...
Say it goes as planned. Buy for $800, add $20K out for $1M less selling costs that your good buddy can knock down to say $20K because he's the good attorney that got rich being nice to people and the accounting work happening just happens.
So my $412K nets me an $80K profit after a year. Not bad, I'd do it on my own, but why should I get in bed with you? How many of these have you flipped successfully?
I work for some guys that do this. There's the books ledger and the favors ledger. Flipping homes is only worthwhile when there's a glut of not ready for market homes on the market, depressing price levels....and you have a crew that can get them there quickly. Otherwise, that money at this point is going to be looking at commercial properties sitting underutilized and getting tenants in and then flipping it.
The one off loan deal is pretty scary. If you want partners, go be someone's junior partner on a couple deals first. Then take the reins and lead a deal.
I spent from 1972 till I finally retired as an investment real estate broker. I handled clients more like a stock broker does. Buying, selling, and exchanging for clients over and over again do I know a little about real estate investing. I put together a number of syndications.
From information given by the OP, I would not touch his deal for anything.
The seller wants cash, but that can easily be covered with a mortgage. Any intelligent investor with half down, with the ability to go for a loan, would not want to go in as a partner but to keep the big profit he thinks will happen himself. If he cannot get mortgage on the property would mean one of two things. He is not capable of getting a loan even with half down due to his bad financial record. If that is the reason, no intelligent person would want to put up $400,000 cash. The other reason, is it is not the good property he claims it to be, and the bank simply will not loan on it. Again no intelligent investor is going to put up $400,000 cash.
When someone has a number of long term or vacation rentals that break even, it is a guarantee that person is not a sophisticated investor.
Break even income property, is the worst investment a person can make. It does not leave any money available to handle future problems, increases in taxes and etc. It indicates the person that owns them, does not really understand real estate investments and is buying properties no one else wants.
There was a lot of that type of owners buying income property back before the big bubble burst. They were suddenly having to feed the property out of their pocket, and a lot of them ended up foreclosed on. Anytime an income property will not give a positive cash flow and a good TRID, run, don't walk away from it, or when the next recession hits you can be in a lot of trouble.
I just don't understand why people assume the worse, even on CD. This investment will not attract uber wealthy people, but a moderate sized investor could see a decent profit that was safe so long as the housing market doesn't pull another 2008 again. Virtually anything else whether it be stocks, currency, etc. has a lot more risk, especially if the economy goes south.
You should know that people cannot live in nor rent a stock that has depreciated. The opposite is true of RE.
Did it ever dawn on you I meant exactly what I said regarding long term rentals breaking even, and I specified the vacation rental is making the profit. So it is not like I have 4 vacation properties and only one is making a profit.
As to why I need the partner/investor, you should be able to tell from my posted history I have X amount of loans out now on properties. While my credit is perfect, I don't want to pay through the nose for a loan on an investment property, since my primary residence and 2nd home loans are already taken up. Plus taking out a loan on an investment property involves PMI and other costs that can be avoided by doing a cash deal. Regardless, the main reason to do a cash deal ties in with what I bring to the table (vs. a bigger fish just doing the deal all on their own). No one knows about this property yet, as it is not listed, nor do people know the dynamics of why and when the family will sell.
Otherwise, you'd be right, why would investor X have me involved when they could just swing the whole deal themselves.
If I lose that edge, undoubtedly others will swoop in, and/or the family will get a high end RE agent to price the place at the current market and help with the logistics to get the place is shape. Again, that would spell the end to my edge/usefulness.
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Originally Posted by artillery77
OP, to answer your question partly, they don't find them on CD.
JV partnerships on property always full of surprises. Who's fronting what cash, how much to keep on hand, who gets the management fee etc...
Say it goes as planned. Buy for $800, add $20K out for $1M less selling costs that your good buddy can knock down to say $20K because he's the good attorney that got rich being nice to people and the accounting work happening just happens.
So my $412K nets me an $80K profit after a year. Not bad, I'd do it on my own, but why should I get in bed with you? How many of these have you flipped successfully?
I work for some guys that do this. There's the books ledger and the favors ledger. Flipping homes is only worthwhile when there's a glut of not ready for market homes on the market, depressing price levels....and you have a crew that can get them there quickly. Otherwise, that money at this point is going to be looking at commercial properties sitting underutilized and getting tenants in and then flipping it.
The one off loan deal is pretty scary. If you want partners, go be someone's junior partner on a couple deals first. Then take the reins and lead a deal.
It will sound too good to be true, but I will manage the place free of charge to my partner. I know what I am doing, have a proven track record with my nearby property, have a network of local contractors to handle anything I can't or don't have the time for etc.
So while an investor will share in any expenses/profits, I will do the leg work without a fee. I know I need their financing, so this is my concession, along with letting them stay a weekend/week in my place for free.
As to the flip question, I am not sure I want to flip this, at least not in the short run. The vacation rental market is booming, so while we wait for it to appreciate to close to it's top potential, it is making a reasonable return.
Like I said, 3-4% in today's anemic economy is pretty good compared with anything outside of the stock market.
As to your friends that do commercial property, I would be worried about maintaining a regular dependable tenant base. Thus I stay away from a few offers I've had to go in on those type of deals. Vacation rentals in this area, especially in the prime spring and summer months is solidly booked. Heck, I wish I had 3 more places like mine, as I turn away a lot of business every summer because my place is booked.
The junior partner suggestion means not moving on this deal. Someone will profit from it, so I'd like to be the one along with a fellow investor. Additionally these places rarely come on the market, and sell for top dollar.
Finding one before it is listed and having the family willing to trade off some value for no involvement is very rare. Like I said, they are already wealthy from what I can tell, and living across the country and investing the time over here would be disruptive to their own lives/business.
Frankly, they may also not know what the market value is, as their parents bought it decades ago for about $250k.
Anyway, I believe this deal will be made within a month or not at all.
Vector, don't take this the wrong way, but you sound way too emotionally invested in this property. My read on this is you want someone to put up the cash and just sit back and shut up, and trust you. Again , my read on this.
You may see this as a golden opportunity, but you may very well be overlooking something, or not be aware of something. Throwing $20k at something can turn into $220k, and I think you know that. Small projects regularly get out of hand fast when you find a small problem, then another, and another. Rinse and repeat. I've seen it a hundred times, if not more.
You say the owners are well-off. Well-off and stupid don't seem to go well together. I say stupid in the sense that they would be stupid enough to sell what you think is a prime piece of property well below what its worth. You may believe you've found a diamond in the rough and they may think they've found a straight sucker. Rich or not, no one is going to pass on the idea of dropping $20k to increase their sale price by $200k+. They're damn sure not going to miss $20k turning into a potential $400k. The owners know something you don't know. Think about this logically for a minute. Then think a few minutes more.
I've missed out on a couple of properties that I thought were the best deal running. I went and talked to the buyers of 3 of them and realized my loss was actually a saving grace. A perfect example was a waterfront home that was everything I dreamed of that was listed for $180k. There was a reason it was listed that low. After the owners blew through every nickel they had, they finally had a house they could move into. They had FAR deeper pockets, and credit, than I have. It ain't always meant to be. And its hard to accept that. I'm still a little hurt on that deal, but I know it was for the better. Sure, the new owners now have a $500k house, but at what cost? They probably have $600k, all told, into a $500k house. It wasn't the easy win they thought. Just the mold remediation set them back $20k or so. That included digging out next to the foudation and installing drains and pumps and all kinds of crap. They spent another $10k on exterior doors. They were stolen by the previous owners who were foreclosed on. After the foreclosure.
If someone is willing to sell you a $100k car for $50k, wouldn't you wonder why? Or would you think you're just that good of a negotiator? 5 properties with only one turning a profit isn't a stellar track record. You could have easily turned this situation into 6 properties and losing your shirt.
Don't ponder on what could have been. Be glad you didn't get swindled.
crazy idea but why not see if the current owner wants to partner with you.
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