Deal With a Friend

Setting up a deal

Currently I’m working on a project with a friend and he wants to invest into Real Estate. It’s his first time experimenting with flipping houses, so I’m going to guide him through the process. Let’s see what happens, I might make a little cash off this deal for helping him. I told him there are a few things that he has to think about before he gets into this type of deal. For this deal to go through there are certain costs and calculations that have to be factored in, for example:

Cost of repairs- In order to get this, we have to contact some contractors to get an estimate.

Price of the house and offer- We need to know what the seller is offering for the house, so we can make a deal that’s lower then the offered price. I’m shooting for 30% below the value of the house.

Closing Costs- These are costs and fees that are paid when real property changes hands.

Commission Costs- Your agent has to make money some how with this deal. Commission usually ranges from 2 to 6 percent depending on how big the deal is.

Holding Costs- This is the cost that holds the property from the time you buy the property till you sell the property. A good rule of thumb is to have enough for a year.

Profit- I’m sure my friend wants to get paid right? So he would want to calculate how much he is getting back in return from this deal. This will determine if the deal is right for him, so he doesn’t waste time and money.

I only discussed some of these things with him, but there is a lot of other little fee and cost that pops up when doing deals like this. I just wanted to give him a feel for how much he has to put into the deal to make the big bucks in the end.

Just as a side note, I’ll keep posting the progress of this deal from time to time. I want other people to learn from this deal.