How Early is Too Early? Contractor Looking to Get into Fix and Flips

Question

Hello All,

I'm new to BP, and new to the rehabbing/rental scene in general.

I'm a residential contractor and I would like for my business to focus on full rehabs rather than smaller jobs for individual customers. It is a move that I have been wanting to make for the past few years, just haven't really known where to start. A recent slow in leads has made me decide that now is the time to move into real estate, my long-term goal.

I am well-versed in contracting, estimating, etc. I am very excited for that part of the process as I will be GCing my houses. My dilemma is this: I have limited capital. I'm not sure how much I would need to cover for the purchase, and I would need to continue paying myself and employees during renovations. I am more than willing to partner with other investors especially for my first few houses. I could take care of all renovations, I just need capital. Is this a desirable situation for an investor? Am I making this move too soon, when I should be focused on building capital?

Any and all thoughts are appreciated. Thanks

Nicholas L. · Answer

@Trent Quinlan

welcome. where in Pittsburgh are you? I'm up in southern Butler county.

If you haven't already, join all the local investing Facebook groups and watch them for a couple of months to see what the investors are asking for. There are GC related requests on a daily basis.

I personally would not recommend partnering on your first or first few deals. But that's me.

Doug Spence · Answer

@Trent Quinlan Your skillset will always be in demand. I recommend going to in-person meetups in your market and providing value to others about GC work. I don't know if I've ever seen a GC/contractor at a local meetup, so you will be able to give a lot of great advice, and in turn, people will want to connect with you and learn more about your goals.

That's how partnerships start! Be patient and provide value first.

Good luck and keep us updated!

That's how partnerships start! Be patient and provide value first.

Good luck and keep us updated!

Rex Petersen · Answer

Lots of demand for GCs in Pittsburgh, I lost my favorite one when he moved out of state.

One idea for funding is Hard Money, check out NextDoorCapital as one option in Pittsburgh that specialize in helping with your specific situation. You pay a higher interest rate than a normal loan, but if you are fast at the renovation with your team you don't have to pay it for long so that can open up some opportunities for those who need the capital.

Ash Hegde · Answer

With a fix and flip loan the lender will cover the purchase and rehab costs up to 70% of the after repair value. You will need to cover some costs up front based on the draw schedule - they will periodically inspect the progress and reimburse your costs. This is also a term that can change with a good lender relationship and several flips of experience, there are programs where the lender will front the costs rather than reimbursing.

Ash Hegde · Answer

Hey Trent, for financing, you're likely looking at 15% down on the purchase price. After you flip a few properties this can drop to 10%, and after several more you might even be able to get 0% down.

The partnership/investor decision is really yours, some people do great with them, some prefer to control everything on their own. If you ultimately decide not to partner, save as much capital as possible and even though you can get in with 15%, it might be a good idea to have more than that for reserves just in case something goes wrong.

Trent Quinlan · Answer

Thanks for the reply. I’m in the Coraopolis/Robinson area. I’ll join some more groups and see what I can find.
If you wouldn’t recommend partnering on flips, what is your recommendation for funding?

Carlos Ptriawan · Answer

GC that can and willing to do flip is the best combination ever. Nobody could beat your cost.

Nicholas L. · Answer

@Trent Quinlan

live in flip OR hard money OR seller finance

it's tough to find deals right now but those are the options

Alan F. · Answer

FWIW Contractors flipped long before flipping became trendy.

I've been in the trades 46yrs & licensed for 31 years & personally I like liquidity, that being said its not always the best way to scale rapidly.

You have immense value with your experience

So many of your questions can be answered by a deep dive into BP postings. Use the search function.

I agree with Nicholas in that your 1st deals may not be best with partners, maybe once you have more experience.

I'm a big fan of contractors lol, I wish you great success!

Trent Quinlan · Answer

@Ash Hegde thanks for the advice. You said 15% down on purchase price. Wouldn't I need 15% of the purchase price+rehab costs? Or just purchase price?

How Early is Too Early? Contractor Looking to Get into Fix and Flips

How Early is Too Early? Contractor Looking to Get into Fix and Flips

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