So- I have targeted a few properties that would be ideal for my first flip. I have another family member that will be an equal investor with me. We have discussed forming an LLC, but I don't know if it would be necessary for the first project. I want to do this first project as efficiently as possible.
I have consulted with my financial advisors and they can assist with a loan that would take less than 4 weeks to become available.
Should I worry about forming an LLC first, or start securing contractors?
What about an inspector? I plan to do about 3 flips/year. Is it better to get the team ready in the wings, or just roll with it step by step. I want to minimize holding costs (obviously), I just don't know how detailed I should be at first. I also don't know if I should have a CPA and lawyer ready or if I should wait until the job is moving along...
I would love if someone could point me in the right direction, ie: step one, step 2, step 3....
I know there are alot of options and some can be opinions, but the more advice the better!
Gosh, I am not about to be the blind leading the blind here...But, hey, there! I viewed your post. Love it I can't wait to see some responses you get. Even if it is just the moderator.
I'm new here. But, I do a handful of other forums, and I don't even check for a response until the next day. It can get you down.
Good Luck :D
Yeah- I hope some of the experts on here can steer us in the right direction. I feel like I am almost there, but need a compass to sort out the priority of what I should do next....
The reason I didn't answer this question the first time around is because this question has already been asked (and answered) a couple of times before. Short answer: you don't need the LLC to do your first deal; get one under your belt and then worry about business structure later. Long answer: check out the search tool for the forums.
I have been using forums for about 8 years, but thank you for the tutorial.
You answered only one part of my question.
Have a good day.....
LLC, Land Trust link to you.
You will have to find a way to build the business revenue and multi unit properties generate monthly cash flow. This gives you income help. 4 unit or less properties are easy to finance. After a while you will have enough to pay cash for rehabs. Pay off that first property and quit claim it to the LLC...
Business generates income and roll over to a 1031 after sale and re-invest. Use a cash out refinance for ... cough cough extra remodeling money.. maybe a meal or 2 or 10,0000.
There is that making you dream a little?
From what I understand, I should probably start speaking to a CPA and lawyer. My day job keeps me very busy, so I will need some experts on my side...
I would rethink the partner thing with a family member. I would not partner with anyone. The cash flows can be very slim when starting out, not to mention, one person always feels like they do all the work and they begin to get irritated. I would start out buying a single family home to see if you even like the business first. It isn't always glamorous but very rewarding one day, so I have heard.
In addition to not doing the partner thing, I would rethink my financing. If you own a home of your own, check into a HELOC. The 4 week turn around time will kill some of your deals. The best deals are had with closing in 10 days or less.
the partnering with a family member still stands. We would each handle very different aspects of the projects.
Yes- the financing I was referring to is a HELOC.
Right now we have temporarily postponed making the first move, but then again, the market is leaning towards buyers. Might consider renting for a year or so....
had to take a break from from our planning, but now we are gearing up to make a property purchase in the fall- closer to winter. We initially wanted to go for a HELOC for the entire purchase of a property, but that is pushing it a little. We are targeting places that are approx. $120-140K and would rehab and sell for $250K. We would be using a family members equity (obviously) which is only about $155K, so we would have to use some low rate credit cards for some of the rehab. We would be pretty much maxing out her equity and the monthly payment would be climbing. We do have some accessible money- savings and other investments, but really only about $15K- we have agreed to try not to tap into that. We are now thinking it may be best to get funding from a hard money lender and use a smaller HELOC for the rehab.
I don't think there is any reason to stick your neck way out there by tapping all the equity in your relatives house.
You can get reasonable purchase money for rehab property from conventional or HM lenders. Use them. Also, you can, at the spread you are talking, get a lot of the rehab money included in the loan.
As for the team. If your sitting around waiting for fall (not sure why) then build the team. It doesn't happen overnight and you may well go through a couple of people before you find the key personel.
The LLC takes a letter and a check to create. What you really need to create are the partnership documents or articles of incorporation so when you are all standing in the kitchen screaming at each other you have a document to explain how you will dissolve the partnership. That may be the most important thing to do right now. And please, family or not, put everything in writting!!!!
Since my post I have looked into some Hard Money lenders and their terms mostly benefit them. I have also heard from other members on this site to target very small local banks. I went to my bank awhile back and they said they couldn't do anything because it would not be owner occupied. They said that would be a business loan and since we don't have a business that has been in existence for 3 years, we were out of luck. But that was our credit union. There are some very small local banks in the area- one of two branches total. Would that be a good place to check? I also have heard that sometimes their are early payment penalties (which we would want to avoid).
We'd really like to go conventional for the purchase of the property and the rehab funding. Or we could even get a smaller HELOC just for the rehab.
BTW the team is already completely set and in place. We are literally ready to go when we can figure out the best funding.
HML terms are very high. However they do help you get into a proporty if the numbers work. It is like leveraging your position. Make sure you take into account all holding costs, up front out back and in between. As for a team, get them NOW. Find contractors and Subs that are recommended by other investors and get them in your contact list. Not just one for each job but multiple contacts. Never fails you are relying on a Sub to get a job done and he cant get to you for 5 weeks. That cost you money for every day you ont have that property ready to go to market. I would worry less about the attorney and accountant at this time and more on the carpet layer and painter. I dont have a problem with family members being a partner but I make sure we are all on the same page. I do this with my father. I got him to be my money man and as far as I am concerned I dont mind doing everything since it helps both of us. I am not doing this full time yet but will eventually. My plan is to continue doing deals with them and then using my own funds venture off on my own for some deals. You just have to make sure you keep the communication open and everyone knows exactly what is expected. True you have to split the cash but if that is waht it take to get you started then do it. Key is to get going.
One last thing and I cannot figure out why someone didnt say this. Join a local REI club. They can be beneficial. Dont have one then start one. Doesnt have to be elobrate, just find some real estate guys and get together. Share ideas and experience. It is like money in the bank.
I definitely have alot to consider and look into when it comes to financing. I'll post back here next week after I have made some calls and gotten some answers from banks.
Definately try your small local banks. My experience with them has been that they are much more flexible, though you probably won't get as good of a rate as with a larger bank. If you are opening a line of credit for flipping purposes, this is not such a big deal. They may want to see a buisness plan. My bank has a prepayment penalty on our heloc if we close the account in one year, but not if we pay it off & leave the account open.
Also -- be careful about running up ANY credit line! If for some reason you cannot sell a house & need to rent it , a large amount of debt could lower your credit scores & affect the percentage rate a lender will give you, so watch your debt ratio.
From one newbie to another - Look down the road at ALL possiblities & be prepared.
I'm definitely going to target small banks to try to get a better loan that will accomplish what we need it to. We will probably stay away from a HELOC, or only get one for the rehab. We have a few credit cards that have better rates than most HELOCs anyway.
I'll have to schedule some time to sit down at the local banks and really chat out all options.