So I'm moving toward finding a deal to rehab and flip, I've got a few leads already, and I need to start investigating financing. I'm curious what the etiquette is for presenting deals in the market place when searching for financiers / business partners. Is it even a viable option to receive private money on my first deal (i.e. will anyone even take a risk on me?)? I have enough cash for a down payment on a loan or to fund the rehab but not both. So how does a rookie go about presenting a deal in the marketplace in order to help ensure interest and success? Additionally, what kind of terms should I expect to receive? I'd be willing to split my fisrt deal 50/50 if the financier would fund it 100%.
I have no history of rehab projects but I am employed as a project engineer at an electrical utility so planning and managing large projects is what I do day in and day out. So in a way I do have have experience, just no track record.
Excellent question! This is just my opinion, but in order to have the best chance at getting funding, you're going to want three things:
1. A great deal
2. Experience and/or skin in the game
3. Supporting evidence
And those are the three things you'll want to present in your Marketplace listing or in your presentation to a private lender.
A little more detail on each:
1. First and foremost, you want to have a deal where there's a lot of room for error, especially if you're new. That means, if you're over on rehab costs by 30%, under on resale value by 10% and over on holding time/costs by 100%, you should still be able to make a profit. The better the deal, the less a lender will care about your experience.
2. Obviously, if you have proven experience, that will go a long way towards getting you funding. I have plenty of people I could have fund a deal today without ever having to present the details of the deal -- they are putting their trust in my experience and previous success. If you don't have that, you're going to want to have some "skin in the game." That means you need to have something to lose if things go south. This ensures that if things get tough, you're not going to just walk away and leave the lender with a ****** situation. Your skin in the game would preferably be some cash investment (many lenders will want you to put in 20% of the total investment), but you could also get creative -- perhaps you have a nice car to collateralize, or you have some stocks/bonds you'd be willing to use to secure the loan?
3. All the talk in the world doesn't matter if you can't support it. When you present a deal, a lender is going to want to see supporting details -- this might include a CMA from a real estate agent or a bid from a contractor. At very lease, be prepared to present some comps and a reasonably detailed scope of work that indicates you've done your homework and you're not just throwing out numbers that the seller may have given you.
While it's always tough to get private money when you're just starting out (especially from people who don't know/trust you), it's possible. You just need to make the lender feel that the risk is as small as possible.
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