Need advice for starting out with cash but poor credit.

Wentzville, MO · Member since 2016 · 40 posts · 5 votes

trying to customize the best strategy for my first flip given my situation. I've gotten a ton of useful info from BP and this is where I'm currently at. My credit is in the mid-to-high 600's. I have enough cash to put a down payment on a mid-sized single family home, as well as cover the cost of a whole home remodel if I needed to, but I'd be using a lot of my own cash doing both, an idea we aren't too fond of. I own my home, but don't have much equity in it yet and paying off my mortgage would require most of my cash, so I've ruled that out for now. Where can using cash save me the most money or give me the most profit? Should I try to go for more of a fixer-upper and use more cash for a better rehab? Or would it be better to put more down on a property, etc?

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JD MartinBusiness Member

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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

10y

There's lots of unknowns. Does your cash arsenal include your safety net to cover your own costs of living? If so, you need to subtract that from the equation.

If it were me, and I had enough cash after setting aside living expenses (everyone says 6 months, I like 1 year), I would look to get into something for less money and make up the difference with sweat equity. The more you can make the first/second houses work by putting in your own labor, the further you can turn that into exponential cash wherein you won't have to do all the work yourself and can expand your portfolio.

When you are first starting out, and are not named Donald Trump, the only things you have to offer is whatever capital you can scrounge up and whatever someone will pay you for your back or your mind. If you buy a house at $40k, can put $20k in materials and $20k in labor (i.e., yourself) into it, and you can clear $100k after costs, you have just leveraged your $20k in labor (i.e., your part-time job that the buyer paid you for) into another $20k for your mind (i.e. your idea/strategy of fixing/flipping the house, adding value into the equation). Now you have your $40k back, and an additional $40k for your trouble. Alternatively, if you are renting the property, you should see a significant premium increase for your rehab efforts, in which case you will get paid for your back & your mind over time and will still own the property - win/win!

I believe this works best on a cash basis when you are first starting out, because you can make mistakes and not be bankrupted, i.e. you don't have a lender breathing down your neck. Once you get your sea legs, you can begin leveraging what you have to expand even further.

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Account Closed
CA · Member since 2016 · 145 posts · 53 votes
10y
@Jonathan Studdard When can using cash save you the most money.. My answer to that is simply not using your money at all and finding a source that may fund your deals weather its Hard Money or your Uncle. Have you ever considered wholesaling &/or Lease Options to build up capital? I strongly encourage it in your arsenal so you never let a deal go by? Its a deal you may pass on but can hand it over to a colleague and make some decent money.
Michael
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Jonathan Studdard
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Wentzville, MO · Member since 2016 · 40 posts · 5 votes
10y
I am certainly going to look into it. Thanks for the advice.
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
10y
There's lots of unknowns. Does your cash arsenal include your safety net to cover your own costs of living? If so, you need to subtract that from the equation.
If it were me, and I had enough cash after setting aside living expenses (everyone says 6 months, I like 1 year), I would look to get into something for less money and make up the difference with sweat equity. The more you can make the first/second houses work by putting in your own labor, the further you can turn that into exponential cash wherein you won't have to do all the work yourself and can expand your portfolio.
When you are first starting out, and are not named Donald Trump, the only things you have to offer is whatever capital you can scrounge up and whatever someone will pay you for your back or your mind. If you buy a house at $40k, can put $20k in materials and $20k in labor (i.e., yourself) into it, and you can clear $100k after costs, you have just leveraged your $20k in labor (i.e., your part-time job that the buyer paid you for) into another $20k for your mind (i.e. your idea/strategy of fixing/flipping the house, adding value into the equation). Now you have your $40k back, and an additional $40k for your trouble. Alternatively, if you are renting the property, you should see a significant premium increase for your rehab efforts, in which case you will get paid for your back & your mind over time and will still own the property - win/win!
I believe this works best on a cash basis when you are first starting out, because you can make mistakes and not be bankrupted, i.e. you don't have a lender breathing down your neck. Once you get your sea legs, you can begin leveraging what you have to expand even further.
Podcast Guest on Show #243
Skyline Properties
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Jonathan Studdard
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Wentzville, MO · Member since 2016 · 40 posts · 5 votes
10y
I am drawn to flipping because it is a process that I can repeat and improve. It seems that if the numbers for a flip work, then they work and it comes down to staying close to budget, and being able to sell it. I like the concept of the cash coming back pretty quickly if I use my own, but I don't like using more than half of my cash. Many people seem to think using my own money is dumb with this strategy and that I should approach REO in general as if I didn't have the cash I do. What is most frustrating is that the puzzle piece of financing seems to be far from a one-size-fits-all solution. I just feel that having more cash than most first-time flippers or investors can give me an advantage I'm not seeing. Fortunately I'm in no rush. Thanks for your advice!
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Ayodeji Kuponiyi
Investor · King of Prussia, PA · Member since 2014 · 1k+ posts · 339 votes
10y
@Jonathan Studdard I believe in the concept of OPM (Other People's Money) if you can leverage someone's capital(Private money/Hard money/People in your circle of influence) to get into RE, then I'd look into that.
As @Account Closed there's wholesaling, lease options, subject-to, etc.
Best of luck!
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