Hard money loan concerns

[Trent Balandran]

Hi all, I am new to the world of real estate investing. I recently purchased my own primary home and I have been prospecting to get my own fix and flip deal. I have a mentor who fix and flips full time and will be assisting me on whatever flip I am able to get. My big concern however is for whatever reason defaulting on a HML. Going into an election year and with the general state of the market at the moment I'm worried about the home not selling and the lender taking my primary residence as collateral. Can this happen? How can I work around the risk of the home not selling?

[Nathan Gesner]

Quote from @Trent Balandran:

It can absolutely happen, and you are absolutely right to be concerned.

Even in the best market, a HML comes with high interest. If your flip runs over budget or you can't sell, you may find yourself in a pickle that is very expensive to escape. I see flippers all the time that spend more than they thought, take longer than they anticipated, and sell for less than they hoped for. You need to know what you're doing and really dial in the numbers, including projections if you break the budget, sell for a lower price, etc.

That's in a good market. In today's market with high prices, high rates, and slower sales, I wouldn't recommend starting in flips unless you have a sure thing.