I received a call last week that started with the question, “Are you a hard money lender?” I told him no, we don’t lend money, but tell me what you are looking for and maybe I can help direct you to the right person.
He proceeded to tell me that he flips homes and was supposed to close on a home in Las Vegas yesterday but his lender pulled out of the deal at the last minute. Then he started to tell me the lucrative financial aspects of the deal and all of sudden…I became a hard money lender. Not really, but I realized as he told me more that we could partner by owning the property and work with him to make this deal happen.
We flipped homes exclusively for three years before starting our rent to own program. Now we primarily focus on rent to owns, but we still do flips when it makes sense. Lately, “making sense” has come back into the picture in a big way.
In the last 3 years we have only done a handful of flips. They would be presented to us from someone and if it looked juicy enough we would do the deal. Recently, all of that has changed. More flips are available to us and we have changed our thinking.
Through Home Today™, we are presented monthly with homes that have been foreclosed on through HUD before they reach the open market. Probably only one out of six or seven meet our criteria. If they do, we rehab them and put them back on the market to either be sold or do a rent to own with them, whichever comes first.
Recently, a friend and really good operator asked me about funding his flips on the courthouse steps here in Reno. The steps are our old stomping grounds where we first started. We have worked out the details and are now the funding source for his deals. We are expecting to pick up a home every week or two off the steps. Our goal is to have a minimum of a 19% annualized return for our investors in ROI Strategies by turning them every 150 days or less.
This works out for our investors and this operator. We don’t have any desire to fire back up the machine to buy off the steps because it is a complicated machine when done correctly. We will let him work that angle and manage the rehabs. Yet we will own, control, and fund the property so we can protect our investors’ money at all times.
However, that is not all we do within that scenario to protect our investors’ money. Part of our agreement is that we are guaranteed (I know, I used the “g” word and I am not supposed to) a minimum 19% annualized return on every deal. Is it really guaranteed? Of course not, because nothing in the investing world is ever guaranteed, but we have a “claw back” with him for deals that don’t meet the minimum.
For any deals that don’t meet that minimum, he has to make up for it in the next deal. The minimum is reasonable to achieve so it works out for the both of us. If it wasn’t reasonable, why do the deal?
All of this has got me thinking, why couldn’t we do this with other operators? I’m not thinking of doing it off the courthouse steps, but more with the operators that are bird dogging the deals and locking the properties up like the guy on my phone call last week.
That property will probably bring a 50% or more annualized return to ROI Strategies. We are still working out the details, but it does appear to be lucrative. Now I know this isn’t any crazy discovery because others do this all the time, but sometimes what is right in front of your nose you cannot see.
Either way, I think a little more due diligence and some probing back into that realm is worthy of the effort and time. As always, we will keep you updated on our progress.