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new business venture...realeastate need help

Discussion in 'Business Forum' started by hotspada, Apr 30, 2006.

  1. hotspada


    Feb 22, 2006
    viginia beach
    hey all. i am 23 years old. i am a provisional teacher as of now. this is my last year teaching, i wont go back. my buddy is the same age as me and he went to embry riddle college in florida and graduated with a degree in flight control. hes having trouble finding a job as he is now on at least a one year waiting list. he needs to stay around the mid atlantic area because of his aging grandmother. i got him a job at my school as a security monitor but we both want better. we have decided to take the plunge and get into real estate. he feels the best way to go about it is to find a house needing some repair and flip it really quick. i dont feel we are in the position to do this because we all know how construction goes, not to mention not being able to definitely sell it within an alloted time. i dont wanna be stuck paying a mortguage for longer then i have to. my theory on it, was to get a house, a liveable house and rent it out. this way we have something to take a private loan out against and then use that money to , if its possible to say, comfortably flip a house. does anyone have any advice, how to go about this, what steps are needed. my father owns a contracting company so a lot of the work will be done in house. any suggestions?
  2. DBradD


    Apr 24, 2005
    I like the idea of doing something entrepreneurial, but I strongly recommend against all this "we" crap. That is a good way to lose big time. I can come up with a bunch of likely doomsday scenarios right off the top of my head:

    1. He gets in a car wreck, his fault, and he gets sued for $2M. Your property ends up in the lawsuit.
    2. He gets married and then divorced. She gets half of his part. You get a partner, a very undesirable partner.
    3. He simply loses interest. He doesn't have to be a bad, low character kinda guy to do this.
    4. He becomes disabled.
    5. He dies.
    6. Business doesn't go so well and he wants out because he can't hang in there financially as long as you can.
    7. He gets a fantastic job offer, but it requires that he move somewhere far away. He will not be thrilled at the proposition of being a long distance landlord if you decide to rent it. This one seems extremely likely from your description. Lots of jobs come with agreements to not have outside businesses too.
    8. He gets into hot water in his personal finances and goes bankrupt.

    Replace the word "He" with "You," and I've come up with 16 likely scenarios in 6 minutes (yep, I timed it).

    I like business ideas, but would be very leery of going into any partnership with ANYBODY, best friend, family, or otherwise. There are just too many bad things that will likely happen. It's also difficult to pin down a real upside, other than being able to get into bigger trouble faster ;) .

    I don't think that's what you expected or wanted. Sorry--that's all I know to say in reply to your post. I'd do it alone or not at all.


  3. Hotspada,

    I have a you have 10% to put down on a house? If so, you can do a pay-option loan. You will have a first mortgage that will have 4 different options to pay each month: a 1% rate, interest only, 30 year, and 15 year. If you pay the lowest payment (1%) the difference between that payment and the interest only payment will get added to the principle. You will go negative on your principle but you will have a low payment. This loan is great for investors. You can get the house, make a really low payment, collect rents, and reap the tax benifits of owning property. You shouldn't go negative faster than your house will increase in equity. So you have the best of both worlds!! This loan will be 80% of the purchase price, you will have to have a 2nd also that is 10% of the purchase price. Hope that helps!!
  4. wannacmyglock

    wannacmyglock Mortgage Man!

    Oct 6, 2003
    North Central Florida
    :shakehead: :headscratch:
    forget about a Pay Option Mortgage. Its not gonna happen on a flip property.

  5. If he wants to keep it I am saying a pay-option would be a good choice. Obviously you wouldn't want a pay-option if you are going to flip it since most pay-options come with a 3 year pre-pay.
  6. wannacmyglock

    wannacmyglock Mortgage Man!

    Oct 6, 2003
    North Central Florida
    well thats not really it either, its almost impossible to find a lender who will do a POA on a NOO property. If its a distressed property (like most flip properties are) you're going to find it difficult to find a mortgage lender, let alone finding one who would offer Pay Option Terms. You would likely only be able to find private investors willing to lend the money. You can easily get private investors to offer interest only payments, unfortunately minimum interest rate from private investors will be 13% and as much as 18%, and likely 4-7 points.
  7. What?!?!? I live in southern California and I work with at least 20 banks that will do a pay-option for this sort of property.....again as an investment, not a flip. 4-7 you guys are killing people in Florida!!
  8. wannacmyglock

    wannacmyglock Mortgage Man!

    Oct 6, 2003
    North Central Florida
    typically lenders will only do a POA on a NOO AS LONG AS ITS A SEASONED INVESTOR.
  9. Maybe that is the way it is in CA FICO goes aloooong way. I could do that loan, all day, all night. :)
  10. TRB


    Mar 7, 2005
    It sounds like your business relationship could be a short one. If that is the case then flipping a house could be the way to go. You can pool resources for a short period of time. The upgrades to the structure should be done quickly. And a quick sale is a must. Since you do not detail any relevant experience that you might have in construction we will assume that you have minimal skills. With these things in mind the property that you are looking for should be one that needs cosmetic upgrades only. If you decide to do this, find someone who can inspect the prospective purchases. Structural repairs will cost you significant time and money.
  11. Don't be in such a hurry. The mistakes you can make are really educational and what not, but they are expensive.

    Can you make house payments?

    Ok. Get a house - one that appears to need some work. Not major work. Just some work. Needs a roof, painting, a fence, a new garage/shop, whatever. Not one that needs a new foundation or new floor joists or has termites or something.

    Live in it for two years, doing the work as you go. Have roommates - they pay rent and it helps. Plan to be done with the fixing at the end of two years and make the landscaping nice - not fancy just nice. You will sell that house for a profit and the profit will be tax free.

    Do it again with another easy house, this time you will be studying real estate during the two years, maybe a business accounting class, appraisal techniques, basic home construction, etc. - something you can get a foot in the door in the building/real estate industry. A needed skill.

    After two more years, sell that house for more tax-free profit. Yum.

    Now it's time to go into real estate. Work for a broker for two years. Maybe two brokers for one year each. See how they do things right and how they do things wrong.

    Now you're ready to rock and roll and you should have a chunk of change to do it with.

    And, DON'T get a partner unless it is a match made in heaven and he has something you MUST have access to. You had better have known doofus partner fot the ENTIRE 6 years that has passed, and you better go to an expensive lawyer for a partnership agreement. If you don't do these 3 things you are a chump.

    That's all the free advice you get. I haven't even gotten so much as a cold beer from you.....
  12. manonmars

    manonmars Spaced Out

    Jul 27, 2002
    The Great Cosmos
    In reading your post, I can only hope you ain't no English teacher...........

    If I were you, and I'm not, I'd NOT do anything like this with a partner......

    If you can't do it yourself, hold off until you have more $$.

    I recommend you find someone who is already "flipping" houses, and ask him/her to teach you how to do it......a successful "flipper" will not be threatened by you asking....

    And Remember, things always take longer and cost more than you plan for......................