i know this is not wha tyou’re looking for, but just wanted to say, that i agree with your thoughts, that your friend should not get involved with this. this is too big a risk for him. what will he get out of this? 50% of nothing? and what’s his risk? he would have a house on his credit, that might foreclose sometime in the near future. i know he wants to help his friends, but there’s a good chance for the friendship to survive if he doesn’t do this.
now with that said, if your friend wants to help his friends and himself, he may want to inquire about the 2 abandoned houses next door. maybe he can get those under contract for a low price and wholesale them. that would help his friends by improving the neighborhood, if someone rehabs those.
just my thoughts
I was talking to my friend who is into R.E, he is just starting out. Here is the situation, The owners bought a house back in 2000 to rehab (Washington DC area) they bought it for 82k, they thought that it only need 10K to fix the property,but unforseen things started happening, like major structural damage, needless to say they went over budget (25k total). Now 2 years later they have taken care of all the structual damage but ran out of money to do the cosmetic work,it needs about 15k total, the house is in a good area, nice historic row houses, the highest one sold to a home owner was 143k in 2002, and the lowest was 68k in 2002 the other houses sold in that area in 2002 was a avg of 95k. The owners think that the house can appraise in the low 180’s(I dont know how, can anyone in the DC area tell me a good reason why they think this way), now they want my friend who has good credit to partner up with them and to apply for a hard money loan, he doesnt have to put up any money or make any payments just get the loan in his name (why I dont know)and at the end the will split the profits. In my researh I think the houses mabye could sell in the mid 150’s(tax assesments & recent sales) because it is a hot sellers market over here, but that is not the only thing I am worried about, the 2 houses next door are abandon and in bad condition, this will probably take a while for it to sell and it will probably be at a lower offer than 150k. So here it is to wrapp it up:
1)owners paid 82k
2)25k already put into it
3)need 15k more to complete rehab
4)now figure all that holding cost for 2 year 950x24mons=22800 just a estimate (wow! just relized)
5)closing cost 6800
6)seller contribution I say around 6k to 10k
7)and then if they decide to sell via R.E agent thats around 6%
8)comps mid 90’s to low 150’s
I know this looks impossible, the owners needs some serious help, and I dont want my friend to inherit there problem, but are there any other creative ways to control this property?, its a big risk for my friend to get another loan on this property the owners dont expect to make much but they need to pay off loans, and who can my friend wholesale this to it isnt at wholesale! all thoughts r greatly apreciated.
JC, I agree with the others that one way to go would be to aquire the other two houses, especially if the market is as hot as you say.
As to this particular property you do not tell us how much is owed. If the owner really is out of money they should understand that their initial investment and rehab cost is “sunk” money and might be lost, and any new money coming in to save their bacon must have repayment priority ahead of them. So in stead of a new hard money loan which i guess would take the current owner “off the hook” the deal should be structured so that the new money pluss a hefty profit gets repaid before the owners get anything, and thereafter some sort of sharing arrangement. TKP, Houston
Re: I NEED CREATIVE THOUGHTS! - Posted by Gerald-DC
Posted by Gerald-DC on October 11, 2002 at 22:48:02:
Is the subject property in DC or the MD surburbs? This sounds like a property I have been monitoring in the Trinidad Section of DC (near Galludet University). If its the property that I think it is, I have a property one block down.
By the way, I agree with the previous posters. Doesn’t seem like anyone knows what they are doing here so I would not advise your friend to put up any cash or credit.
I agree with Michaela(GA) and Tim Fierro(WA). Advise your friend to stay away from doing business with these optimists.
I wish I could think up some other way to help your friend and the property owners, but I can’t. The only other possibility it seems to me is to try to buy the houses next door. And then do NOT hire the rehabbing property owners to fix it. Or even consult with them on what to do. Well, maybe consult with them on what not to do.
I would tell your friend to not even get involved with these people. These people do not have a very good track record.
They only thought $10k rehab instead of the $25k they put in already, and still need another $15k. Anyone who can estimate $10k rehab and it is really $40k, are the same people who might put a FMV of this house at $180k instead of the $150k.
2 years to do $25k in rehab? How long will it take for them to complete the last $15k? How long to finally sell the property?
They estimate wrong, they take too long, they don’t know FMV, they have no money in reserves; tell your friend not to touch this with a 10’ pole. These are not the people to get involved with.
There frankly just isn’t anything in it for your friend except all the risk with no true profit potential.