Private Money or Fix-and-Flip to Build Initial Capital?
Member since 2023 · 74 posts · 18 votes
Private Money or Fix-and-Flip to Build Initial Capital?
Most Popular Reply
Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votesthe best way to build initial capital for RE... is from a W2 job.
private money isn't really a beginner strategy... and if it were easy to fix and flip to generate capital, we'd all have side flipping businesses. a flip requires CASH for closing costs and points, a down payment, holding costs, costs to cover any overage you weren't able to borrow...
so, the issue with flipping is that (1) it takes capital, and (2) the return is 6-12 months out.
12 Replies
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
the best way to build initial capital for RE... is from a W2 job.
private money isn't really a beginner strategy... and if it were easy to fix and flip to generate capital, we'd all have side flipping businesses. a flip requires CASH for closing costs and points, a down payment, holding costs, costs to cover any overage you weren't able to borrow...
so, the issue with flipping is that (1) it takes capital, and (2) the return is 6-12 months out.
- Member since 2023 · 74 posts · 18 votes2y
I appreciate your response! That all makes sense. If you don’t mind, I’d be curious as to your thoughts on the idea that it takes a long time to save up enough simply from a W2 job. I’m saving as much as I currently can and would be on pace for a decent down payment in about 10 years. This seems way too long to wait. I know this is most individuals’ issue and understand that there are other creative financing options, but I find myself stuck in an infinite loop of needing funds to invest so that I can raise more funds to invest. Hopefully this makes sense, and thank you!
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Nicholas L.:
the best way to build initial capital for RE... is from a W2 job.
private money isn't really a beginner strategy... and if it were easy to fix and flip to generate capital, we'd all have side flipping businesses. a flip requires CASH for closing costs and points, a down payment, holding costs, costs to cover any overage you weren't able to borrow...
so, the issue with flipping is that (1) it takes capital, and (2) the return is 6-12 months out.
^^^^^^^^^^^^^^ This right here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Yes it takes a long time, the average age someone buys a home is now in their 30's.
Here are 3 things you can do
1. Cancel your cable and online subscriptions and get rid of your TV
2. Find employment where you can also work from home.
3. If you make $15-$20/hr working an extra 2 hours per day that could be an extra $200/wk or $800/mo. $800/mo can get you a $100k mortgage.
7e investments53 Reviews - 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
all great questions and this is the challenge right now with both prices and rates high. the best beginner options are a house hack or live-in flip - with that said though, i realize that (1) not everyone's life or family situation permits this, and (2) some markets have many more small multifamily properties than others. so, for each individual person, it's more or less doable.
if it's going to take you years to save up a down payment, can you increase your income and/or cut your expenses?
also start going to REIA meetings, networking, asking questions, etc.
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes2y
Quote from @Kyle Kline:
Hello,
I am just starting out in real estate investing and am seeking advice on how to fund my first deal. I do not have much of my own capital to use to purchase a property and was recently given the advice to either utilize private money to purchase a property or do a few home flips to build my own capital.
Does anybody have any advice and/or experience starting out with either of these two methods? I appreciate any insight anyone is willing to share!
Find deals, flip the contracts, save, learn then go on your own. Exactly how I started.
Good luck
- 2yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
Starting out in real estate investing with limited capital can be challenging, but there are several strategies you can consider to fund your first deal. Here's some advice and insights on utilizing private money and home flipping to get started:
Private Money: Lenders of funds to real estate investors that provide better returns on investment than standard financing choices are known as private money lenders. These lenders can be either individuals or businesses. Here's how you should go about using personal funds:
Make connections: Begin by making connections with friends, relatives, coworkers, and other real estate investors who could be considering making a real estate investment. Participate in regional seminars, networking events, and real estate meetings to broaden your contacts and make connections with possible private lenders.
Present a Strong Investment Opportunity: Have a strong investment opportunity ready to offer to private lenders. This entails carrying out in-depth market research, examining prospective properties, and drafting a comprehensive investment plan that details the risks and possible rewards.
Establish Credibility and Trust: It's critical to establish credibility and trust with possible private lenders. Act with integrity, show that you are a serious real estate investor, and be open and honest. Think about offering recommendations, endorsements, or instances of profitable transactions you've worked on or been a part of.
Home Flipping: Flipping homes involves purchasing distressed properties, renovating them, and selling them for a profit. While flipping homes can be profitable, it also requires a significant amount of capital, time, and expertise. Here are some tips for getting started with home flipping:
Start Small: To reduce risk and get expertise as a newbie, think about beginning with smaller, less expensive properties. Seek out distressed houses that are better off with minor cosmetic updates than major structural repairs.
Form a Team: Assemble a group of experts to assist you in navigating the house flipping process, such as bankers, contractors, real estate brokers, and inspectors. Putting together a trustworthy crew is crucial to carrying out effective flips.
Manage Your Finances Sensibly: When flipping houses, sound money management is essential. For every project, create a thorough budget that includes the costs of purchases, renovations, carrying, and sales. To prevent cost overruns and delays, keep close tabs on project schedules and spending.
The optimal strategy for financing your first real estate transaction will ultimately rely on your personal objectives, financial situation, and level of risk tolerance. To find the plan that best suits your financial condition and investing goals, investigate both private money and house flipping choices. When you start your real estate investment career, don't forget to do extensive study, consult with knowledgeable investors, and move cautiously.
NETWORTH BUILDERS5236 Reviews - Member since 2023 · 74 posts · 18 votes2y
Thank you all for your responses and insight. As I said, I recognize that my concerns are quite common and that Bigger Pockets offers many solutions to investing with low capital. However, I truly appreciate hearing directly from other individuals with experience and knowledge. Thank you all for sharing!
- Lender · Chandler, AZ · Member since 2023 · 88 posts · 48 votes2y
Quote from @Chris Seveney:
Quote from @Nicholas L.:
the best way to build initial capital for RE... is from a W2 job.
private money isn't really a beginner strategy... and if it were easy to fix and flip to generate capital, we'd all have side flipping businesses. a flip requires CASH for closing costs and points, a down payment, holding costs, costs to cover any overage you weren't able to borrow...
so, the issue with flipping is that (1) it takes capital, and (2) the return is 6-12 months out.
^^^^^^^^^^^^^^ This right here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Yes it takes a long time, the average age someone buys a home is now in their 30's.
Here are 3 things you can do
1. Cancel your cable and online subscriptions and get rid of your TV
2. Find employment where you can also work from home.
3. If you make $15-$20/hr working an extra 2 hours per day that could be an extra $200/wk or $800/mo. $800/mo can get you a $100k mortgage.
Love the sentiment. Keep in mind if you need to use two jobs to qualify for a conventional loan, the borrower will need to demonstrate two years of holding those two jobs simultaneously.
Now if you are planning on using a hard/private money loan -- lenders don't care about income. Assets (and experience) are the main factors.
- Member since 2024 · 7 posts · 1 vote2yI’m new to REI and I’m learning that since I don’t have a lot of flexibility for house hacking and options for no money down. I need to focus on producing some cash savings. Currently readjusted my household cash flow to focus on debt reduction and cash savings that way I can invest within the next year or two. I will be able to save approximately $50k in a few years. There are other means to gaining some extra cash too, pulling from retirement funds, personal loans, borrowing from friends, etc. If you’re interested we could link up and I could help develop a similar plan.
Quote from @Kyle Kline:
Thank you all for your responses and insight. As I said, I recognize that my concerns are quite common and that Bigger Pockets offers many solutions to investing with low capital. However, I truly appreciate hearing directly from other individuals with experience and knowledge. Thank you all for sharing!
- Lender · Atlanta, GA · Member since 2016 · 51 posts · 10 votes2y
Quote from @Kyle Kline:
I appreciate your response! That all makes sense. If you don’t mind, I’d be curious as to your thoughts on the idea that it takes a long time to save up enough simply from a W2 job. I’m saving as much as I currently can and would be on pace for a decent down payment in about 10 years. This seems way too long to wait. I know this is most individuals’ issue and understand that there are other creative financing options, but I find myself stuck in an infinite loop of needing funds to invest so that I can raise more funds to invest. Hopefully this makes sense, and thank you!
Another way to raise capital is to leverage your credit (680+ score required) and apply for unsecured loans, which have a 1 - 5 year repayment period. Check out www.fundingyourbiz.com to learn more.
- Investor · Member since 2023 · 7 posts · 2 votes2y
Analyze markets, analyze trends, and exercise a strong sense of financial acumen. You can beat the 1% rule. I started purchasing investment properties summer of 2023 and offered on my 8th property this morning. Sound money decisions, planning, eliminating wasteful spending, and having a team are all critical aspects needing attention when you’ve made the decision it’s time to expand your financial horizons.
- Member since 2023 · 74 posts · 18 votes2y
Quote from @Jamie Singleton:
Analyze markets, analyze trends, and exercise a strong sense of financial acumen. You can beat the 1% rule. I started purchasing investment properties summer of 2023 and offered on my 8th property this morning. Sound money decisions, planning, eliminating wasteful spending, and having a team are all critical aspects needing attention when you’ve made the decision it’s time to expand your financial horizons.
I appreciate your advice, and congratulations on your success!
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