I guess you need to weigh their offer against you carrying costs, costs to renovate and any other expenses you may have. You have to turn a profit, right?
I think you are right to not resound too quickly.
CB, your sleuthing skills are impressive! You’ve discovered that, among other things, these potential buyers are misrepresenting themselves. You are right to not be in a rush to negotiate with them. There are just too many red flags.
I do not believe that the buyers were misrepresenting themselves. I believe that their agent is just full of hot air (as a lot of them are) trying to push the low offer.
They definitely have proof of funds and can purchase the house all cash.
My main issue right now is carrying costs. If it was all my own money, I would hold out longer. But, I have investors and I feel a moral obligation to stick to my promises. A lot of investors handle things differently, but I would chose to actually lose money before I would lose my reputation. I depend too much on being able to have future cash loans available to continue in the business.
Just so you understand the pressure that weighs into a lot of possible upcoming decisions… my loans technically become due in January. That does not leave much time left to accept an offer and go through an escrow. All of the investors tell me they don’t care, they can extend if I need to, but it’s just not the right thing to do.
It’s a great renovation…and I would hate to see you lose money on it.
CB, it’s just that attitude that your potential buyers are counting on. Let’s hope another offer comes along very soon so you don’t need to counter the lowballers.
What interest rate do you pay your investors? Do they get a mortgage on the property?
I hope some of the others who have been through numerous times will decide to go to bat.
That’s a very good question. I probably should not reveal exact interest rates because there is fierce competition in the business. I know I am paying less than investors who use the large well-known hard money lenders. In our area that would be the Norris Group or some others. Some of the money lenders have moved from flipping to hard money lending. Current market rates for these guys is 2 points up front, some appraisal and processing fees and 10-12% interest. They will record a trust deed/mortgage against the property, so they are providing a secured loan, not really a hard money loan (which is usually unsecured). I have not approached the formal hard money guys so I don’t really know how they provide the ‘proof of funds’ to sellers that gives them an edge in offers
Ill lay out my “scramble” strategy sometime soon
Ok, suffice to say that while maybe you are not paying 10-12%, you are probably paying well above what current mortgage rates from a bank are, and way more than they can make from any kind of other fixed income investment. And your equity largely shields them from any risk, unless something happens like an earthquake that levels half of San Diego.
So your lenders would probably be happy to extend your loans by a month or two. Where else are they going to put their money? In the bank at 0.1% interest? I think they would much rather have the loan extended. It takes time to put money back to work, I’m sure they’d be happy to let you go forever as long as they are still protected.
So if I were you I don’t think I would worry about a one or two month extension not being the right thing to do. If they were anxious to get their money back, your lenders would not be shy about letting you know.
I absolutely agree that the lenders would likely be thrilled to extend their secured, high-rate loans for a couple of months.
The issue is whether cb would be comfortable continuing to pay those high-ish interest rates for another couple of months. I suspect she’d like to get her money out of this project and move on to the next one.
CB: Are you going to counter this offer?
Once all the dust settles – that is, once you’ve sold the house, to this buyer or another – I hope you will post the actual offer this buyer made.
Here is how I try to manage borrowed funds. I think it is a little different than my competitors who have deep pockets and/or have a lot of funds they can draw on right at the beginning.
When I began, I was very careful to only purchase properties that I could buy and remodel with my own capital. This obviously limited what price range I could work in and I was working in lower cost neighborhoods. After about two years I had a track record and I actually had some personal friends who were willing to loan funds, mostly unsecured - they didn’t care about the recorded Trust Deed (California language for mortgage).
I try my hardest to pay the least amount of interest possible so I use Just In Time borrowing, which causes me to scramble a lot and calculate future costs as accurately as possible but it is always short!
All of the loans I take are deferred interest and principal payments. This means that I will not be paying anything back until the property is sold. I used to make them 6 month notes, but learned my lesson that 7 month notes are safer.
If a starting purchase price for the property is less than I have, I have a primary source who can loan me up to X but he wants a recorded Trust Deed. However, he is a really nice guy and will actually loan me the money for 2 days to put into my account, then I quickly print out a Proof of Funds, and then I return the money. Interest Free. That takes a lot of trust from someone. You cannot get that trust until you have been in the business for a long time and they know you personally.
I will then borrow the funds into cash about 2 days before the purchase and start paying the interest. The problem is that you can make about 20 offers and need Proof of Funds before one actually sticks. Sometimes that can take months and Seller’s agents usually want to see Proof of Funds dated within the last month. I try really hard to avoid paying interest during that whole purchase period - because it is interest costs that aren’t even going towards any project.
For funds that are secured by a 1st position Trust Deed I pay 7 3/4% with 1/2 origination point. I notarize a Trust Deed and give a Promissory Note on the day that I borrow it, but I do not record it at the County Recorder’s Office until a day or two after the legally recorded Grant Deed because I do not want to muddy the transaction in escrow. I draw up all my own documents and record everything myself.
For this project, I actually had to borrow more than Mr X had available, so I took two more loans for the purchase. But these lenders don’t care about a Trust Deed. Since their loan is not secured I offered them 10%, no origination points to sweeten the deal because I needed the purchase money. One of them doesn’t even care if I hand him a Promissory Note, but I always execute it and take it to his wife. So now I am sitting on 3 different loans before I even start the project.
Then I try to stumble along in the project as long as I can and take small incremental loans. I will go down my list of personal investors to see if they can do it. On this project, I took some remodel money from Mr X and offered a 2nd Trust Deed at a higher interest percentage (8 1/2%) because a 2nd Trust Deed is higher risk. Unfortunately, after I realized that doing the downstairs would be more than I thought I had to go back and get a 3rd loan from Mr X, but he didn’t care about a Trust Deed at this point. Offered slightly higher.
Right now I am sitting on two Trust Deeds recorded against the property, which will be paid back in escrow when the sale closes. And, I am sitting on three other loans that I will pay back personally after I get the funds back from escrow. Not to mention the HELOC that I use for some of my main capital 
It’s a lot of debt owed on this one. Probably Too Much Information giving away my business model
As of this morning, Sunday, we have not heard anything back from the other agents. When my agent called one of the agents she explained that her buyers are waiting for their house sale to close at the end of the week. She said, “I’m going to hang up and call them right now”. We heard nothing back. This tells us that they are seriously interested but being cautious to close their sale first.
At this point, we are willing to take an offer ‘contingent’ on sale of the other house (since it is only 5 days away) if we can get closer to our asking price
While we’re all waiting for cb to get her offer moving, I thought I’d share our bathroom remodel. Well, half remodel - we’re replacing the vanity and mirror since the sinks and pipes are rusting, the vanity is worn, and the mirror is also worn. The other half of the bathroom has a double Jacuzzi tub and walk in shower; totally different era but we’re not ready to redo the entire bathroom right now. Originally we just meant to replace the sinks! But they’re an old hexagon shape and there are no current sinks that would fit the opening.
So we threw caution and thrift to the wind and are getting this vanity: http://designelementusa.com/products/DEC023-TTP There are two old lights over the sinks and we’re going to try replacing them with two of these: http://www.lampsplus.com/products/possini-deco-nickel-collection-23-and-one-half-inch-wide-bath-light__16900.html There is currently a third light over the toilet - if the lights over the mirror (plus the ones over the tub) aren’t enough light, we may put this one in: http://www.lampsplus.com/products/possini-euro-deco-nickel-collection-13-and-three-quarter-inch-wide-wall-sconce__06256.html If we don’t need more light, we’ll just close up that opening.
And here are the new towel bars and TP holder: http://www.lowes.com/pd_321478-69133-4293___?productId=3123963&pl=1&Ntt=gatco+latitude
Nice, Marilyn! Great choices.
Funny, our house is 21 years old. The vanity lights are very similar but are chrome instead of brushed nickel. At least the style we have isn’t dated.
I really want to replace our master vanity with one that is six inches taller…but DH is not on the same page…at all!
Love the vanity top, Marilyn. Great choices.
Nice choices! You will love not having to deal with a springy spindle for the TP. We have a similar one -first installed the wrong way and we were constantly pulling the roll off. Flipped it around and never had that problem again.
I hate the springy thingy TP holders. Hmmm… To think about it, I also hate the powder room vanity and faucet. I wonder if I can pull off one of those “while you were out” episodes while Mr. is traveling.
I love the single bar for toilet paper also. Makes changing the paper so much easier, especially now that we are at the age where we don’t have to worry about little kids messing with it. However, for some reason our bar has started to ‘sag’ down a bit (well, like everything else around here, including my body!) and I’m worried it’s going to get at an angle where the dang roll just slides off Hasn’t happened yet