1st Fix & Flip Advice

[Scot Evans]

Hello BP Friends,

After reading and listening to many BP Podcasts episodes I've decided that I am finally taking the first step into my real estate investing journey. I am looking to invest in my "backyard" in the Atlanta Metropolitan area. I have ran the numbers on a few potential single family one story 3b & 1-2.5/ba properties and they all have potential to do really well after calculations. I am seeking to use Hard Money to fund. The only experience I have in investing is the purchase of my current residence which was newly constructed using my VA Loan. How should I approach a potential Hard Money lender to back these deals with little experience? I am confident they are great deals just skeptical of my approach to the lenders. Any advice would be greatly appreciated especially if you're a contractor, local investor, lender, agent, etc.

[Jaron Walling]

@Scot Evans I'd take a step back and consider where you found these deals and if the upside is enough to attract HML, private, or anyone else. If it's listed on market I'd run the numbers twice, three times, and share it with other investors either privately or in the BP forums. If you share numbers and general location you'll get experts giving you advice. It could be a home run or a money pit. Given our market I'd take a cautious route to real estate investing.

If you have a plan and numbers backing it up the money will find you. I'd approach a HML only if you can't find money in other places. Each HML operates differently and most require skin in the game. It's based on the deal and your financial situation. If you think you'll finance 100% of a flip you're in for a tough time. Everyone talks about investing using OPM but that's not real life when you're starting out.

[Michael Dumler]

@Scot Evans different hard money lenders will offer different financial products, but at the end of the day the lending requirements are based upon the deal itself and your financial position as well. Similiar to using a traditional mortgage, you need to contact/interview several HML and verify what they can offer to you. I would stick to using referral based lenders and keep cautious of non-trustworthy lending firms. Hope this helps!

[Kevin Polite]

Congrats on starting your journey in real estate. Do you have a trusted contractor, a closing attorney, a real estate agent, etc. The first place to start is having a good team in place. I have actually found a few deals on MLS, but that was just because the agents didn't realize they had underpriced and I put in an offer the first day and was lucky they accepted my offer. That's very rare and I"m seeing wholesaler deals that are higher than on MLS.

You'll find plenty of hard money lenders, but without experience and a large down payment you're going to be paying higher rates. If you need to pull permits, City of Atlanta & DeKalb are sometimes 2-3 months behind thereby increasing your hold period and interest payments.

You might want to look at buy & hold, the rental market is on fire here. Unfortunately, you can't purchase an investment property with VA loan, but you could house hack your current one if and when you decide to move. Best of luck

[Mike Juliff]

@Scot Evans

I agree with Kevin. Trusting your team is essential for flips. Contractor and lender are probably most important and also most difficult to find good ones. Look for referrals from others and if enough people point you to one person then they are probably a good person to work with. If they are good, the biggest thing is whether they are going to be available. Good luck! I’m also working towards my first flip this year.

[Bruce Woodruff]

Why hard money? Can't you refi your house and do much better? Just askin'....

[Kai Kopsch]

First off congrats on taking the first step, since you're under 4 properties a conventional loan or a repair loan would be easier to get started. Starting with an HML would be the same as learning how to drive a car using a Ferrari as your first car.

[Curt Smith]

Scott, Please please find a local mentor!!!   Join the local REIAs, which is where more experienced folks hang.   I have gotten into new folks first flips after they where in contract, even after closing and found they lost money NOT made money.

A 3/1 punch out to a 3/2 even with NO exterior walls moved/roof extended has exceeded $90k (easy) and you may end up more then $90k (for a 3/1 into a 3/2).   Only $15k or so less if same floor plan 3/2 --> 3/2 but new everything.

Rule of thumbs;  10% cost of sale not 6%, sellers have to cover buyers closing costs is std practice.  Higher rehab costs then estimated and cost of cash is higher then expected not only due but other issues due to rehab taking months longer then planed.  Holding costs aren'ed considered.  many oops and cost over runs..

Please get some training and a mentor. REI especially flipping is a team sport.

The REIA I ended up keeping aftrer joining them all, is GaREIA and they have a Northside flipers group and an Intown rehabbers bgroup where you meet other flippers, an email list to get contractor referals.

I just got a flooring (LVT) quote 2.5x higher then my last rehab.  $5k going up to $13k for just 1300sqft (including quarter round).   Of course this forces me to go to plan B and buy the LVT from Dalton myself and hire the installer myself...  All adding to my work and PIA!!!   Just FYI, re what additional hassel is in play and ways where you'll loose your shirt.

Good luck, curt

[Penny Brown]

How great that you jumped from podcast listener to doer! Congrats on making the leap. Here is where the fun starts.  Now that your deal analysis says it's a go, get prequalified with a lender.  Depending on costs of rehab, it could be a 203K repair loan, or a private lender, or as a last option, a hard money lender.  Have your contractor go over the rehab costs with you, line by line so you can do a scope of work for the lender.   Give your financial docs, scope of work to lender so they do their underwriting.  Loan gets approved.  You bring your downpayment to the closing attorney and boom...you have a deal! Lots of turns in the road, but that's the basic map...need more help...message me...happy to help...Best of luck house hunting!

[Scot Evans]

@Bruce Woodruff 

The equity in my home is estimated to bring me no more than 25K in my pocket and I do not have the best debt to income currently so how much the Cash out refi will bring will be based on credit standing. 

[Scot Evans]

Hey @Jaron Walling , 

Thanks so much for your input. I believe that's where I am now. I've spoken to people who are active in the market and ran the numbers multiple times. They check out for the most part. I think I'm at that point where I believe I have to eventually make a move. I've hesitated many times before. I am more of an action taker. Based on 90% of investors I've spoken to and listened to on the podcast they start and that first deal is not always the best or extremely successful. I believe that through the knowledge I've gained that I am in a comfortable space to make a move in investing and ran enough numbers to mitigate the loss. 

I believe either way I Look at it I'll end up using OPM whether through traditional financing or HMLs. Definitely would love to pick your brain on your experiences with other HMLs that you have had. Definitely new territory for myself. I've heard the good bad and ugly thus far. 

[Scot Evans]

Hey @Michael Dumler , 

Do you recommend HMLs through BP or there are others that you have heard of. I currently view the reviews of each potential lender of HML here on the BP platform. I definitely do not want to work with HMLs who do not have a common interest and who are not trustworthy. Thanks for the input.

[Scot Evans]

Hey @Mike Juliff , 

Thanks a lot! Good luck to you and your journey as well. 

[Scot Evans]

Hello @Kevin Polite ,

So I have a contractor who has rehabbed my farther in law's entire home. Very high quality work that I'd love to see in my investment properties. 

Thank you so much for the information of the hold times for the permits. I was unaware of that factor. That's definitely an important aspect of the investing. 

I have a few airbnb properties that I rent out and I really want to get my feet wet with buy-in a property and flipping it. I lease out and rent on Airbnb. The thing is that I do not own these properties. But I definitely agree that the rental market is booming tremendously in Atlanta. 

I am a new father and soon to be married and house hacking really is not an option for me at the moment. 

[Scot Evans]

Hello @Kai Kopsch , 

I believe my debt to income hinders me from obtaining a repair loan. I've looked into 203k construction loan with no luck. Am I looking in the wrong places? I just cannot afford any more inquiries on my credit when those lenders are not approving me. Any additional Information on these loans would be very helpful. My strategy is to find a great deal and factoring in all of the high rates and holding costs that. may be incurred using the HML route.

[Bruce Woodruff]

Sounds like you have a LOT on your plate right now....maybe just take a break and wait a year.....?

[Scot Evans]

Hello @Curt Smith ,

I am currently planning to attend my first REI here in Atlanta January 19th and I definitely am looking forward to connecting with experienced investors. I am a very detailed and analytical individual and I plan to tackle most if not all of the issues that those investors fail to place into their investment strategy. I can second that statement. I have seen many new investors fail to improperly estimate their expenses and end up losing lots of money instead of profit.

The homes I've been looking into range from 50K-90K. For the 3B/2ba I've been seeing on/off market has averaged at about 30k in rehab work but on my own personal side I double that number for issues that I may have left out from my inexperience. At minimum I try to double my numbers for money that I may have to spend. Im not looking to add rooms to my first project. 

I plan on tapping into the equity of my residence for any other expense that I may incur. 

[Scot Evans]

Hello @Penny Brown , 

I love how you listed my lending options in order of precedence. Thank you so much. I am about to message to connect with you more now! 

[Curt Smith]

Originally posted by @Scot Evans:

Hey @Jaron Walling , 

Thanks so much for your input. I believe that's where I am now. I've spoken to people who are active in the market and ran the numbers multiple times. They check out for the most part. I think I'm at that point where I believe I have to eventually make a move. I've hesitated many times before. I am more of an action taker. Based on 90% of investors I've spoken to and listened to on the podcast they start and that first deal is not always the best or extremely successful. I believe that through the knowledge I've gained that I am in a comfortable space to make a move in investing and ran enough numbers to mitigate the loss. 

To pull equity out of your primary I reco Lendinghome.com, did 1 with them in last 90 days. I also did 2 with financeofamerica.com in last 160 days and would not reco them! Cash out REFI from primary at most 75% LTV, from a rental typical I've done is 65%. So you think you have equity but when knocked down re LTV you may not have the borrowable equity you think. Then subtract fees, points etc the net gets smaller.

I believe either way I Look at it I'll end up using OPM whether through traditional financing or HMLs. Definitely would love to pick your brain on your experiences with other HMLs that you have had. Definitely new territory for myself. I've heard the good bad and ugly thus far. 

[Kevin Polite]

@Scot Evans just be aware that you can't do a 203k on an investment property. These mortgages are limited to ‘primary residences,’ meaning the borrower has to live in the home full time. So they’ll only work for specific types of investment properties of 2-4 where you live in one of the units, but since you have a home that doesn't work. I would get my financing in place before I put a non refundable earnest money down, but good luck and the best way to learn is to jump in. What area of town is the property? 

[Kai Kopsch]

Originally posted by @Scot Evans:

Hello @Kai Kopsch , 

I believe my debt to income hinders me from obtaining a repair loan. I've looked into 203k construction loan with no luck. Am I looking in the wrong places? I just cannot afford any more inquiries on my credit when those lenders are not approving me. Any additional Information on these loans would be very helpful. My strategy is to find a great deal and factoring in all of the high rates and holding costs that. may be incurred using the HML route.

I would talk with an independent loan officer, a lot of smaller lenders can work out a long-term strategy.  I send you a PM

[Kaustubh Johri]

First of all, make sure the comps are there. In Zillow, figure out what similar homes have sold in last 6 months (Not in the last 3 years). Once you are sure of the numbers, work on financing. You can attend local meet ups looking to raise money but no experience will be a hindrance. If the numbers work, there will be plenty of people who will partner with you for a split in the profits but then again your credibility is not established yet (since you have zero experience)

HML may be the way to go. It is expensive but that is the cost you pay for being a newbie and that is ok. Once you have a few homes under your belt, friends and family and other investors will come to you to invest with you.

After financing, the next challenge will be finding good contractors. Good ones are busy and there are plenty of shady ones out there. Not trying to scare you but with experience (often bad) you will emerge strong and wise. 

Follow my journey @bluebayhomesllc on instagram. Good luck. Ping me if you have questions. 

[Dakota McIntire]

SkyBeam Capital is a HML who welcomes new investors. The company is led by a group of investors who have been investing in ATL for 20+ years.