I thought you cleaned the windows already fairly late in the process. How did they get so dirty again?
Major rainstorms blew through in the last couple of weeks with enough driving rain to find one tiny little gap on our roof. Which we discovered via a temporary stain on the bedroom ceiling. So I can imagine the flip windows got pretty dirty!
As a side note, the previous owner of our house had had the roof reshingled with a five year warranty. The company came over, found the gap, and sealed it up. At no charge.
Lucky you Marilyn. They actually showed up to fix it! You’re good for another 5 yrs because it doesn’t rain that heavily for so many days in a row here.
And yes, windows cleaned first week of December but lots of rain since then.
CARRYING COSTS
As we get close to closing escrow, I have finalized my estimate of carrying costs. Carrying costs are a very large portion of doing these projects. These costs are never revealed in the TV shows. They include interest on all of the loans I had to take to keep the project going, property taxes, insurance, utilities and credit card interest. All of my credit cards are maxed out at this point and I have only been able to make the minimum payments for many months.
Drumrolll…
$96,686
This does not include selling costs such as commission, title insurance, escrow fees, etc.
Oy!
cb, will you do a final accounting for all of us? Eg, Purchase price + $950,000; Labor costs = $XXX,XXX; Materials + $YYY,YYY; Closing costs = $96,686; Sale price = $Z,ZZZ,ZZZ. Profit = $AAA,AAA.
From [url=<a href=“http://talk.collegeconfidential.com/discussion/comment/20249205/#Comment_20249205%5D#6063%5B/url”>http://talk.collegeconfidential.com/discussion/comment/20249205/#Comment_20249205]#6063[/url] we know the renovation costs were $450K.
Purchase price $950K, carrying costs $97K, so the total is up to $1.497mil.
Just need the closing costs and the sale price and we’ll know everything!
The carrying costs are embarrassing but I revealed them because it is important to know that there is a big chunk of cost that is never included on the TV flip shows. My costs were very high because I had to take a lot of hard money personal loans at high interest rate and hold them for a long time. Also, I have really high credit card interest that I am carrying.
If I did not have to borrow money (and somehow had $1.5mil in deep pockets) my carrying costs would only have been about $22,000. Try sleeping at night when you owe everyone in town, including a bunch of banks, over a million dollars!!! This is a key reason that I had to take the best offer in hand as fast as I could.
CB,
since investing in you has given your investors great returns, I STRONGLY suggest you renegotiate the terms of your agreement with them as far as carrying costs before embarking on the next flip.
You have shown them that you know what you are doing , and you do it a an incredibly low price!
Such as lowering the interest rate that they charge you, having THEM pay the interest charges on your credit card purchases for material bought for flips, or even better- have THEM take out credit cards for all flip material purchases.
I’d also have THEM pay the property taxes, etc, etc.
You would not be putting all this stuff on your credit cards if you werent buying it to do the remodel that they profit from.
Start negotiating!
“If ye do not ask- ye shall not receive”
Another cost, often not shown on the flip shows, is the real estate commissions.
It’s not reasonable to ask investors to pay my credit card bills. I could have borrowed more funds and then paid off the credit cards, at a much lower interest rate. Another issue I had is that I didn’t have any income coming in all year so I had to use my personal credit cards to stay afloat for groceries, etc.
The solution next time is to borrow a lot more funds up front at lower interest rates so that I’m not scrambling for more loans later in the project. So, I’ve got to work on my negotiating skills to try to get lower interest rates from my long term investors.
Asking investors to pay nonreimbursable costs of doing business would seem to move them from investors to partners. They might then feel entitled to some share of the profits commensurate with their risk and outlay other than loans.
Negotiating lower rates upfront would certainly makes more sense.
“It’s not reasonable to ask investors to pay my credit card bills.”
What about this idea?
“have THEM take out credit cards for all flip material purchases.”
“CB FLIPS inc” credit cards?
Co-mingling expenses is NOT a good idea- better to have a red line drawn between personal and business expenses.
Makes the accounting a lot easier too .
…but yes, DO borrow a LOT more $ up front because as you have found out- costs DO skyrocket when unexpected events happen !
Yes hard money loan could cost as much as 12%, I am sure you have a lower cost, even that 100K of carrying cost is not funny. Lets say the RE agent fee is 3% or 50K, staging etc is already included. The “profit” is around 200~250K. Its not a big money winner provided that cb worked all year with hands and knees. Its not glamorous by all means.
I am really careful to keep personal expenses in a different bucket on different credit cards. I don’t ever mingle… well maybe $20 out of my wallet here and there when I’m stuck at a store somewhere.
I tried partnering with a contractor once or twice. Luckily he left all design decisions to me, but there is a lot of “why do we have to have the brushed nickel faucets? Why can’t we just put the old ones back in? Or why can’t we just get the cheap chrome ones?” I really don’t want to have to justify every purchase and/or every mistake we make. So, I prefer a business plan where I am just using loans at X interest rate.
I have no problem if investors are interested in what we are doing or want to stop by and see the progress.
When I made the decision to build the large addition I knew I would need a lot more funding. I receive a lot of solicitations from large hard money lenders. So, I called some of them up and actually started the process to pull a large loan. Their rates are
2% points up front
10% interest rate - they are all advertising these ‘low’ rates
But then the fun begins. You have to send them tons of documentation and then there are hidden fees for appraisal, documents, recording, etc. Those run up to about $1,500. As soon as I learned the hidden fees I pulled the plug and went back to my regular investors and found some new investors.
I pay between 7 1/2% to 10% on funds, depending on whether they are recorded as a mortgage against the property or private unsecured loans. I have one investor that does something really smart. They use their Home Equity Line of Credit to loan funds to me. They pay 3% on their line of credit and receive about 8% from me. Smart way to make 5% on someone else’s money.
I am sure cb is an honest, trustworthy and hardworking person, but I was burned very badly by loaning some money to a “developer”. Its a LONG story I do not want to tell, but the result is that until today, almost 10 years later, I still did not recover all my money. I had a recorded 2nd lien/mortgage against his house(now primary resident), but unless I foreclose, I cannot get him pay back the money. To add salt to the injury, the value of the house is much higher than all the recorded loans(total of 5 ) he had outstanding, but he is just not paying me, just the primary lender, the bank.
I have investigated the foreclosure procedures very hard, but it costs 10’s thousands of dollars and it is very hard going through the court system. Commercial Banks do that all the time with army of lawyers and processors, but for a small potato like me, the foreclosure procedure is just as costly as the loan itself.
I won’t do it again to some one I do not know him for a long time. Let me get off the soap box and talk to my lawyer how can I proceed with foreclosure as it is today I need to step on it.
BTW, it is a BAD idea to loan someone by borrowing, thought you can make the difference in rates. Take me as an example, just imaging I loan this shyster with borrowed money?
I was wrong on the cost of a foreclosure, just spoke to a specialist, they charge $3000 soup to nuts, but that is only the first round. It is likely and I saw on the steps all the time, the foreclosure sale was canceled on the day of sale, the specialist told me that is because the property owner filed bankruptcy and that will halt the sale. Upon halting the sale, you need to go to the bankruptcy court to start negotiation again and that is costly legal procedure. We can call it round two. Well, the court will allow a person to file bankruptcy three times, that is why a foreclosure goes on for so long.
After the foreclosure sale, to get the property owner out of the house is another problem, that is eviction process. A contested eviction process can last six months or longer, including the previous owner will be allowed to file bankruptcy three times again. Or if there are children or disabled person involved, it could take year(s). I was told the story that they have to get the person into section 8 before he can be moved.
More stories will go on and I don’t want to discuss me being sued for fraud in one of my eviction case.
If he eventually sells the house will get your money?
Artloverplus
There are several things you can do without paying for the whole foreclosure process. From your description it sounds like there are 5 loans recorded against the property. If you research the other recorded documents you can find name and address of any loan behind you in the pecking order.
Simply file a Notice of Default against your Trust Deed. Then mail that to every other lender. I can guarantee they will put huge pressure on the owner because they don’t want the property to go to foreclosure. Some Trust Deeds have language that you have to keep property taxes, insurance and all other loans current or you are in default. All other loan holders will put immediate pressure because they could get wiped out.
And you will be paid back if owner ever has to sell. Then you can collect a ton of late fees, default fees, processing, interest etc