Top 10 questions to ask every Real Estate Investor
#1 – Do you have your own cash or do you use investors and/or banks?
So many investors and flippers tie up property and then run around trying to get them financed, giving the rest of us a bad name! Be sure you’re investor is well capitalized and can move as quickly as they say. There are many ways to fund a deal, and by asking this question you will uncover potential issues and delays in closing by knowing if they’re really using their own cash or have a seasoned private funding partner.
#2 – Do you flip or buy-and-hold…, and if you flip, do you do a complete rehab (add sqft, bedrooms, baths?) or just a cosmetic/paint-and-carpet type of remodel?
It’s important to know your investors’ business model. Buy-and-hold investors can usually spend more money than a straight flipper. Flippers on average will buy properties in worse condition. Flippers can also usually move faster than a buy-and-hold investor, who will want to leverage conventional/longer-term financing.
#3 – What’s the average close time on your last 10 deals?
Some investors may have the cash and investors that will fund their projects, but they will be tapping retirement accounts or utilizing conventional financing sources that are unpredictable and may take weeks or months to fund. Have them elaborate on the timing and process of their last few deals to see if they can really close as fast as they say.
#4 – How many rehabs have you done in the last 12 months?
It’s important to know how many ‘round-trip’ flips a rehabber has done recently. If they haven’t done much (or any) in the last year, that could mean two things – they’re new to the business and don’t know what they’re doing, or, they’re super conservative and will probably never close on a deal. Again, have them elaborate on specific projects they’ve done recently to determine how experienced they are so you’re not wasting your time.
#5 – Do you use a general contractor or have your own/in-house construction team?
There is no right answer here, but if the investor has their own/in-house team, they are probably more savvy regarding what it will cost to do the remodel. If they have a contractor they work with a lot, again, they will probably know their rehab cost structure which will allow them to make a quick and more decisive decision. If they’re just winging it, and need to scramble to find a GC, that is a sign that they either haven’t done many deals, or don’t have a good team to support them.
#6 – How is your company structured, and who is the principal and signer?
It’s very important to know if you’re dealing with the principal and ultimate decision maker, or if someone else will be making the final decision. In many cases, the ‘acquisitions guy’ will get the property in contract and do the due diligence, but not have the ability to close.
#7 – Do you wholesale your deals or do you actually buy the homes and do the work?
It’s not a bad thing if you’re working with a wholesaler, but again, it all depends on their ability to execute. This will depend on whether they have a robust enough buyers list to purchase the property at above the contracted price and terms. Many wholesalers get stuck by having a flaky buyer on the other end, or even a dishonest buyer who will leave them at the alter (won’t close) because they’re trying to go around the wholesaler to buy the deal direct!
#8 – What is your budget and/or price range?
In other words – how much are you willing and able to spend? I have always said that I have no upper limit, and if it’s a good deal, we’ll buy it. That’s not entirely true. We’ve purchased $3m+ ‘flips’ that we sold for over $5m, but I would not want to own 10 of those at once. Many investors will say the same – “I’ll buy anything you got if it’s a good deal”, when they have never purchased a house over $1m.
#9 – What territory or neighborhoods are you focused on?
Again, this will save you time and energy in bringing your investor the right type of deals in the right areas. I like to focus on projects close to my home because we fix and flip almost all our deals and I want to be close enough to easily do drive-bys every week at a minimum. The professional investor will have a very good idea of what markets they want to play in.
#10 – Do you use an interior designer?
This doesn’t seem like that big of a deal, and I’m sure many flippers would argue with me that this is not a big deal. I get it, many rehabbers will just copy the design of other remodels that sold for the most money in their area, or they do the exact same design on all their flips to minimize decision making and develop economies of scale. I agree with all that, especially if you’re rehabbing in a market that has similar homes styles and buyer profiles. I happen to be in the San Francisco Bay Area which has every architectural style you can image and a very diverse buyer pool, literally from all over the world. So we tend to design specifically towards what our target end-buyer will appreciate, while maximizing the existing style and layout of the home. I humbly believe the only way to be successfully and to maximize your exit price is to have a professional interior design making those decision and designing a complete product that flows well and gives the buyer a sense of style and a home they will be proud of.
Well, that’s it for now. If you have any questions about our model, how we work, or if you just want to run a scenario by us, do not hesitate to call.