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[ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] Deal analysis Posted by Ward-CA- on May 10, 2003 at 7:58 AM In Reply to: Possible first deal. Asking for opinions please help. posted by Ernie on May 09, 2003 at 11:03 PM : I have been lurking here and on a couple of other forums for awhile and I am now asking for help with my first post. I have read several books and a few courses and have just about enough knowledge to get myself and others in trouble... : Here is my situation. I am a 36 yr old retired "public servant" on a medical pension which brings enough cash flow for me to pay for my bills with a little left over. I have two kids and my wife is ready for our third. I recently moved from So. California to No. California in search of a better place to raise my children. I have excellent credit and am getting a HELOC for $50k and have $50k cash to invest. : I called two people who were doing REI in my area who had ads in the paper. Both were interested in meeting w/me. I met the first gentleman today and he ran this deal by me. He was going to use a hard money lender because his cash is tied up but is interested in doing the deal w/me because I have cash. : The deal is this, he already has a subject to signed up which has not been recorded yet. Here are the numbers. : 1st: 120K : 2nd: 30K : Both notes are held by financial institutions. It has a 4 month old appraisal of 177K in as is condition which is needs paint and clean up. It is in 2 months arrears of less than $2K. I have checked the comps and they are around $200k in good condition. The REI needs 10K out of the deal after we record due to "cash flow problems". He originally wanted to do a L/O where he would get the up front money and we would split on the back end minus his $10k up front. Having this be my first deal I told him that I would rather flip it which he agreed to do. REI has done all DD which I have double checked. He says that he has contacted the 2nd and they are willing to sell for 15K. Does this sound like a doable deal? Or am I being taken because I am a newbie who doesn't have enough experience to know better. The REI seems to be strapped for cash because it is "tied up in other deals" I would appreciate any advice that the more experienced investors can give me and I am sorry for the long first post. : Thanks, : Ernie =•=•=•=•=•=•=•=•=•=•=•= Ernie, You don’t mention the profit breakdown between you and your new partner, so I’m going to assume it’s a 50/50 split. So, from your re-sale price of $200,000 make the following deductions: 1. Balance of the remaining 1st = 120,000 2. Payment of arrearage on 1st = 2,000 3. Payoff of the existing 2nd = 15,000 4. Probable delinquent property taxes = $2,000 5. Guestimate on rehabbing costs @ 5% of resale value = $5,000 6. Turnaround time of 6 months X 800 monthly payment on 1st = $4,800 7. Contribution towards your resale buyer’s closing costs = $2,000 8. Resale commission of 6% = $12,000 9. Your resale transactional expenses (title, termite, etc.) = $4,000 If my math is correct the two of you will have a net of approximately $ 33,200. Splitting that gives each of you about $16,600. Since you gave your partner a $10,000 advance on his profit upfront he should only get $6,600 at the close of the deal. So your cash outlay equals about $37,000. The rest of your payments can be postponed and paid out of your resale escrow (property taxes, sales costs, transactional costs, etc.) So now the question is, are you satisfied with making approximately $16,600 on a cash outlay of about $37,000 over a period of about six months. Some items to think about would be: How are you going to take title to the property? How are you going to secure the $10,000 loan to your partner? What kind of written agreement are you going to have between the two of you concerning who's going to do what and who has final say? What will trigger the repayment of the $10,000 and are you going to charge 6 mos. interest on it? Hope this helps. Follow Ups: Re: Deal analysis Ernie 8:33 AM, 05/10/03 (3) Re: Deal analysis Gary 8:19 PM, 05/15/03 (0) Re: Deal analysis scinv 9:09 PM, 05/10/03 (0) Re: Deal analysis scinv 9:08 PM, 05/10/03 (0) Post a Followup: Name : E-Mail : Subject : Comments: : : I have been lurking here and on a couple of other forums for awhile and I am now asking for help with my first post. I have read several books and a few courses and have just about enough knowledge to get myself and others in trouble... : : Here is my situation. I am a 36 yr old retired "public servant" on a medical pension which brings enough cash flow for me to pay for my bills with a little left over. I have two kids and my wife is ready for our third. I recently moved from So. California to No. California in search of a better place to raise my children. I have excellent credit and am getting a HELOC for $50k and have $50k cash to invest. : : I called two people who were doing REI in my area who had ads in the paper. Both were interested in meeting w/me. I met the first gentleman today and he ran this deal by me. He was going to use a hard money lender because his cash is tied up but is interested in doing the deal w/me because I have cash. : : The deal is this, he already has a subject to signed up which has not been recorded yet. Here are the numbers. : : 1st: 120K : : 2nd: 30K : : Both notes are held by financial institutions. It has a 4 month old appraisal of 177K in as is condition which is needs paint and clean up. It is in 2 months arrears of less than $2K. I have checked the comps and they are around $200k in good condition. The REI needs 10K out of the deal after we record due to "cash flow problems". He originally wanted to do a L/O where he would get the up front money and we would split on the back end minus his $10k up front. Having this be my first deal I told him that I would rather flip it which he agreed to do. REI has done all DD which I have double checked. He says that he has contacted the 2nd and they are willing to sell for 15K. Does this sound like a doable deal? Or am I being taken because I am a newbie who doesn't have enough experience to know better. The REI seems to be strapped for cash because it is "tied up in other deals" I would appreciate any advice that the more experienced investors can give me and I am sorry for the long first post. : : Thanks, : : Ernie : : =•=•=•=•=•=•=•=•=•=•=•= : Ernie, : You don’t mention the profit breakdown between you and your new partner, so I’m going to assume it’s a 50/50 split. : So, from your re-sale price of $200,000 make the following deductions: : 1. Balance of the remaining 1st = 120,000 : 2. Payment of arrearage on 1st = 2,000 : 3. Payoff of the existing 2nd = 15,000 : 4. Probable delinquent property taxes = $2,000 : 5. Guestimate on rehabbing costs @ 5% of resale value = $5,000 : 6. Turnaround time of 6 months X 800 monthly payment on 1st = $4,800 : 7. Contribution towards your resale buyer’s closing costs = $2,000 : 8. Resale commission of 6% = $12,000 : 9. Your resale transactional expenses (title, termite, etc.) = $4,000 : If my math is correct the two of you will have a net of approximately $ 33,200. Splitting that gives each of you about $16,600. : Since you gave your partner a $10,000 advance on his profit upfront he should only get $6,600 at the close of the deal. : So your cash outlay equals about $37,000. The rest of your payments can be postponed and paid out of your resale escrow (property taxes, sales costs, transactional costs, etc.) : So now the question is, are you satisfied with making approximately $16,600 on a cash outlay of about $37,000 over a period of about six months. : Some items to think about would be: : How are you going to take title to the property? : How are you going to secure the $10,000 loan to your partner? What kind of written agreement are you going to have between the two of you concerning who's going to do what and who has final say? : What will trigger the repayment of the $10,000 and are you going to charge 6 mos. interest on it? : : Hope this helps. Optional Link URL: Link Title: Optional Image URL: [ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] WWWAdmin 2.0a © 1997 Matt Wright and DBasics Software Company, All Rights Reserved

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