Newbie - How should I save to fund my first investment?
SoCal · Member since 2017 · 30 posts · 12 votes
Hi everyone! I'm an investor newbie and would love to start my real estate investing journey with flipping houses. I currently work a 9-5 job M-F and my husband and I own our home. I was wondering how much we need to save up to dive into our flip? I read about a bunch of creative financing ideas including taking out a HELOC, private loans, or hard money loans, but it sounds pretty risky to completely leverage my first deal. Especially since property in the OC/LA area is so expensive. How did you fund your first few projects?
If you don't know what you're doing and don't have reserves hard money can be risky, it will all depend on the purchase price of the home you are looking to flip and how much work it needs. If you look in the inland empire things are much cheaper but do not sell for as much when rehabbed either. Evaluate several properties on your own and see what the profit would be for each, even ask the forum for help if necessary. Then when you see the profit numbers you can properly evaluate if borrowing from a HML is worth the risk.
Welcome Sunshine,
You have to do what makes you comfortable and save as much as you can always. Find a lender and in my opinion try to put as little down as possible so you can keep cash for emergencies. Everything is risky. To me tying up cash in a deal is more risky than leverage but thats for another day. My best advice is for you to start evaluating single family rental properties constantly. Hear me out.
The best way to offset risk especially starting out is to give yourself multiple exits even if things go wrong. The best way to do this is ensure you buy a single family property that will be an excellent rental (after repairs of course) if things go south and it doesn't sell. Search for properties that need work, but evaluate them and look for the ones that would be great single family rentals. When you find those, in good enough rental markets then evaluate the property as a flip and see if the numbers make sense.
I wouldn't necessarily say this is the greatest strategy to get the highest profit on a flip, but it is in my opinion as close as you can get to a truly hedged investment in real estate.
Other than that, seek out a partner or a very experienced GC who has done flips so you can pay him to basically walk you through the project. Just be careful, vet everyone you will work with, don't give out money before work is done, and do your best to keep multiple exit strategies open.
If Richard Branson was able to negotiate to give back all planes to Boeing if his airline didn't work out, I'm confident you will find a creative way to limit your downside on your first flip.
Hope this helps, best of luck!
Be sure to post your success story when you complete your first flip
@Aaron K. and @Ryan Luby thanks so much for the feedback!
@Ryan Luby thanks for the alternative backup strategy suggestion! I will definitely keep that in mind when looking at properties. I hadn't thought of converting from a flip to a rental if the flip struggles to sell. It's a really great idea!
Flipping is very high risk, all real estate investing is high risk, if you are not prepared to accept that you can lose all your investment you should reconsider investing. It is part of the game. You need to get comfortable with leverage.
High risk, high reward.
Flipping is very high risk, all real estate investing is high risk, if you are not prepared to accept that you can lose all your investment you should reconsider investing. It is part of the game. You need to get comfortable with leverage.
High risk, high reward.
Flipping in a tight market, where there is so much competition for value adds, is not easy. It is not easy to find a value add that can be purchased for a decent price. Use of HML will significantly increase your holding costs. If you are not an RE agent, the cost to sell is not cheap.
I question how many recent first time flippers in So Cal turned a profit on their first attempt. I suspect that a large percentage performed the flip for the learning experience but not by plan; they expected a profit that was not achieved.
It would be safest if you realize your first flip could lose money and, if it makes money, the financial compensation likely would not justify the effort and risk.
Ideally you would have gain some key knowledge and maybe some skills that could be leveraged on your next flip. This increased knowledge hopefully leads to more profit on subsequent flips.
As Thomas stated, RE investing has risk. I think this risk is highest for those with minimal experience and finances. You should think of it like a competition. Those with experience and deep pockets are better equipped to succeed in RE. They have networks and often teams to help them find the best projects. They will find many of the projects that work. They have trusted contractors to perform any task. They have vendors that may provide them a discount.
You need to find either what they missed or what they chose not to pursue because the profit did not warrant the effort/risk. You then need to get the flip work done and flip the property for a profit. It will not be easy and it will require work.
Good luck
@Michael Kelly thanks so much for providing such detailed feedback! Your post was really helpful! :)
Hi everyone! I'm an investor newbie and would love to start my real estate investing journey with flipping houses. I currently work a 9-5 job M-F and my husband and I own our home. I was wondering how much we need to save up to dive into our flip? I read about a bunch of creative financing ideas including taking out a HELOC, private loans, or hard money loans, but it sounds pretty risky to completely leverage my first deal. Especially since property in the OC/LA area is so expensive. How did you fund your first few projects?
Flipping houses is ultra competitive. I'd keep saving until you have enough money to do the deal in cash. Flipping got really popular a few years ago because we had a historic crash. Those days are over. So that leaves you with slim inventory and many people fighting for it. You need competitive advantages to edge out the competition. You'll be going up against folks who can outbid you because they don't have to pay for the money, they probably have in house realtor & construction services as well. Going against all that is a recipe for disaster.