Advice on a Personal or Small Business Loan to Scale business

Advice on a Personal or Small Business Loan to Scale business

Wholesaler · New Orleans, LA · Member since 2016 · 7 posts · 1 vote

Hi Everyone,

I'm currently considering taking out a Personal Loan or a Small Business Loan to further scale my wholesaling business.  

Back Story:   I've successfully wholesaled 4 properties in the last couple of months (6-7months) averaging just over $6,000 assignment fee per deal. I've currently been a student full-time as I started wholesaling so I haven't had income besides student loans. I'll graduate this May and I'm looking to wholesale full-time. Financially, I have basically broke-even by using my wholesale profits as my supplemental income for all my living expenses and repairing my credit. I do am working from home but there isn't space for a legitimate office/desk area to stay organized especially with wanting to expand in productivity. 

So I'm wondering if it is a smart decision to pursue a small loan of $10,000 or less ($10,000 can cover 3 months of all my expenses) to be able to triple my marketing and investing in systems to further establish my business. My thinking is that if I can triple/quadruple my marketing I will generate a higher % of potential leads and deals coming in consistently. As of now, will no major marketing funds available, I'll continue to average my same response rate that by the time getting a good deal and closing my expenses eat away at my profit leaving very little for investing back into the business and marketing. 

Anyone's advice and/or experience would be greatly appreciated!! Thanks

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Property Manager · Griffith, IN · Member since 2015 · 1k+ posts · 913 votes
10y

I wouldn't recommend that and based on your remarks about your credit and limited number of closed deals, you may find it hard to qualify. I don't recommend it because your business is not at a point of success to absorb the risk of having debt. I started with no outside money in November 2015 and have closed 13 properties in those 5 months. I bust my A off to find the cheap leads- driving mostly to start. I started with a small mailing of 300 in a specific area and got a deal from that. Every time I get a deal, I pay myself so I can survive and the rest stays in the business. I partner with local investors who can fund deals so I am able to close on them and get more than just an assignment fee. It takes work and is frustrating at times but I have no debt and I'm not pressured to make a deal out of something when it's not there. In my opinion, debt should not be used for living expenses. It should be used to make more money. What happens if you don't close a deal in 2-3 months? You've used up your loan on living expenses and are back where you are today except with a big loan you have to repay. If you graduate in May, go get a temporary job/career in your field and use that income to pay your bills. In your time not working that job- put it into wholesaling. You'll be much better at what you do if you don't have the stress of debt clouding your judgement on a property. Good luck

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  • Property Manager · Griffith, IN · Member since 2015 · 1k+ posts · 913 votes
    10y

    I wouldn't recommend that and based on your remarks about your credit and limited number of closed deals, you may find it hard to qualify. I don't recommend it because your business is not at a point of success to absorb the risk of having debt. I started with no outside money in November 2015 and have closed 13 properties in those 5 months. I bust my A off to find the cheap leads- driving mostly to start. I started with a small mailing of 300 in a specific area and got a deal from that. Every time I get a deal, I pay myself so I can survive and the rest stays in the business. I partner with local investors who can fund deals so I am able to close on them and get more than just an assignment fee. It takes work and is frustrating at times but I have no debt and I'm not pressured to make a deal out of something when it's not there. In my opinion, debt should not be used for living expenses. It should be used to make more money. What happens if you don't close a deal in 2-3 months? You've used up your loan on living expenses and are back where you are today except with a big loan you have to repay. If you graduate in May, go get a temporary job/career in your field and use that income to pay your bills. In your time not working that job- put it into wholesaling. You'll be much better at what you do if you don't have the stress of debt clouding your judgement on a property. Good luck

  • Wholesaler · New Orleans, LA · Member since 2016 · 7 posts · 1 vote
    10y

    @Adrien C.

    I truly appreciate your response and advice! It literally got me out of my own way and made me shift my mindset back into the right direction. You are absolutely right and I was just looking for an excuse that would've been detrimental to my success. Over the last 2 days I just signed 2 contracts I plan on wholesaling. One is a converted Dbl into a single (3bd/2bth 1300sf, big lot: 7770sf) and that been fully renovated and occupied by the same tenant for the last 2 yrs (rent: $1019). It doesn't need any major repairs just touch-up painting on the interior walls. It's under contract for $40K with an ARV $85K, comps sold for $85K-$113K.

    The other is a shotgun single 4bd/2bth 1100sf that has been partially rehabbed and still needs rehabbing with the HVAC system converting it so central from window units (Repair Est. = $5K or less ). It's also tenant occupied month to month. I got it for $33K with an ARV $80K. Both properties free & clear, do you think these numbers work for wholesaling or is there a better exit strategy I should consider?

    Again Thank You

  • Property Manager · Griffith, IN · Member since 2015 · 1k+ posts · 913 votes
    10y

    Both can be good wholesale properties depending on what your buyers are looking for and what they are willing to spend to get that amount of rent. I would pay $45K for $1000/month rent with a stable tenant. If you have investors looking for flips, the deals are ok but the second could be tight- depending on the rehab. With a flip though, the investor has to sit on it and wait for the tenant to get out. I like to find properties where tenants are definitely leaving (so I don't have to displace anyone) and I'll partner with a local investor to fund it and we slap some lipstick on it and sell to another home owner at 75% ARV. They don't care about making a profit but only a good house to live in.

  • Wholesaler · New Orleans, LA · Member since 2016 · 7 posts · 1 vote
    10y

    @Adrien C.

    Thanks for you advice and analysis. Both properties have month-to-month tenants. I have a bunch of pictures of both properties, that give to any interested buyers. What's the best way to show the property when buyers are interested in seeing it when tenants are involved?

  • Property Manager · Griffith, IN · Member since 2015 · 1k+ posts · 913 votes
    10y

    get the tenants on your side. Let them know that if they are helpful with you, you'll get them a gift card or something. If they don't want to cooperate, I close on it and give them a 30 days notice. 

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