Your 1st flip to your most recent...FUNDING
Real Estate Agent · Orlando, FL · Member since 2015 · 177 posts · 54 votes
So here I am wanting to make the most of the new year ahead and the questions I am always interested in for investors who have been flipping houses for a while is.....
How did you fund your first flip? How did you fund your most recent flip?
I am curious to see the difference, if any, so when the time comes this year I know what I need to have to begin the process myself.
Better to Flip with a LLC or using your own name?
Any information you have for someone looking to do their first flip, other then finding the deal, would be a great read.
Thanks in advance!
Hi Matthew!
I think this is an awesome thread. I am such a lurker on Bigger Pockets! I love reading the post in the forum and I find the information that people share to be very valuable. Okay, so here are my stats.
I am currently working on my 2nd flip here in Orlando. My first flip was a success and I was so grateful for the research and preparation that I did prior to starting my flipping business. Although, I am a active licensed real estate agent, I have a real passion for flipping. However, I know there is currently a trend towards wholesaling. And, in my humble opinion, I believe wholesaling is a lot more challenging than people are really sharing, and for my own personal choices, flipping feels like the right fit for me.(Everyone has to find their own way).
To finance all of my deals I used Patch of Land and I discovered them here on BiggerPockets. I like that they gave me a chance as a first time flipper and they seemed user friendly. In addition, they funded my deals with patience and walked me through the process as a newbie Investor. Also, each time I close a loan with them, they give me better rates.
Although, I could have flipped in my own name, I like my privacy and like to keep my business separate from my personal life. I did create a LLC and I close my investment properties in the LLC's name. For me it provides enough comfort and space between me and my company. (Plus some hard money lenders require you to have some sort of corporation or LLC in order to fund, but some do not. Be sure to check with your lender). By me closing in the LLC's name, my credit was used as a guarantee on my loans, but they didn't show on my credit report as a open credit line. (Please understand if I had defaulted on the loan, it would have ultimately went on my credit).
Honestly, my biggest challenge is finding qualified, affordable, ethical contractors. I prefer to work with licensed general contractors and people who understand my vision for the flip. Contractors are notorious for not staying on their timelines, and I find it difficult to keep them on my time schedule. Anyone who knows a good contractor, please PM me and share. :)
For 2017, I am looking to find a few buy and hold multiplex’s because I want to continue to grow my portfolio. In addition, I would like to ultimately have enough money to fund ALL of my own deals, even though I know this will take time. I definitely will continue to flip and find great deals.
I think Central Florida is a great community to invest in and we are definitely in an upward transition in many industries in the area. I will continue to stay plugged in to Bigger Pockets and feel free to ask me any questions. ;) I hope that helped!
@Matthew Rollo Thanks for this post. I think it something that a lot of use wonder about if we haven't landed our first flip yet. I look forward to the answers the BP community can provide.
@Will Eagles I am super curious to see the responses myself. It will be cool to see the differences from person to person and deal to deal. I am hoping this thread gets some action and would be a good read for newbie investors and even veteran investors as well.
Let's try to get this thread to the top of the list. I would really appreciate any and all input as I am looking to fund my first actual investment from start to finish this year. With the knowledge and experience on BP it would be a great read.
@Timothy Howell Thanks for the response. I would guess most of the first time flippers are either using private money or HML.
Are you using any of your own money?
How many flips have you completed?
@Andrew K. Nice man, that's really cool. I look forward to reading about your flip int he success stories section!
Way ahead of you, I have been talking to my mortgage guy and the HML he uses. Reaching out now because I know I want to have everything set up for success in the next 6 months and not be last minute like I was in high school hahah
The personal funds you are using from the rehab, is that just money you have saved up or are you taking out a busienss loan, personal loan?
@Matthew Rollo I also hope my flip is a success! Either way it'll be an awesome education and should be a great time!
You are WAY ahead of me, good for you! In the words of Borat I wish you "great success!" Kick your 2017 off right and analyze deals like crazy and submit offers! No time like the present to take some massive action. Can't wait to see what you end up with.
I'm using personal funds that I've squirreled away for REI. I'm not wealthy or anyway near rich--believe me. I'm a typical American middle-class dude working a full time job with some consumer debt, student loans, three little kids and a wife that works--it's tough to put money away. However, I feel it's important to have a track record of using your own funds for deals--to build trust/confidence with investors later on. The model doesn't scale quickly, but it's the path I'm taking.
I'm also in the middle of rehabbing a VA foreclosure, doing much of the work myself to keep costs low. This property will be my first true REI buy & hold following the BRRR model. It helps that my market has a relatively low price point for real estate investing.
My plan is to combine the equity from my BRRR, flip profits, and lottery winnings (yeah right!) into one pot and move on to the next project--ideally a multifamily. So my plate is full, but it's exciting but I have to kick it in gear to ensure I can retire in 7 years.
Keep us posted and I'll keep following along!
-Andrew
Awesome story man! Just another guy living the American Dream. Using what he has, with a little hard work and dedication, to achieve a monstrous goal! Keep fighting the good fight and look forward to hearing more about it
If I am ever in your neck of the woods, or vis versa, we need to defintiely grab a cold one!
@Andrew K. ^^^^^^
@Matthew Rollo you got it man! I might actually be headed to Key West for business later this month. If I can swing a layover in Orlando you got it!
-Andrew
this is a great post. I'm looking forward to more responses but @Andrew K. thanks for the info. I'm also making the move to flip this year. I have an equity partner and I have significant equity in my home, but the HML route seems like a very good alternative. I like the plan to purchase with hard money and rehab with personal money. Good luck to you and @Matthew Rollo as well.
@Justin Charpentier congrats on making the decision to get a flip done this year! Sounds like you've got a good financial framework established. One suggestion, look for HMLs that are local to your market. They'll have a good feel for market conditions and may introduce you to other key people to add to your team. My assumption is that if a local HML is willing to fund a deal, then it's really on me to get the project done and earn the profit. In contrast an online or out of area HML may base their fund decision purely on numbers and have to concept of the market you're in. You may end up funding a project that looked good on paper, but goes sideways due to local market conditions.
Good luck and keep us posted!
-Andrew
@Justin Charpentier Right on man, seems to be the route again for a first time/newer flipper. I am hoping we could get this thread going to see how someone who has done maybe 50 flips is now funding. If there is any difference and they are probably using HML still. Did you happen to catch @Brandon Turner webinar last night? It was quite entertaining and filled with some good information. Be cool if we could get some input from him on this as well. He talked a lot about the BRRRR strategy and how it is one of his favorite ways purchase rentals and occasionally make some money on a short term flip as well.
@Matthew Rollo I missed the webinar last night. I have a friend who has been flipping for the past few years in upstate New York. I'm gonna try to meet up with him this weekend for some advice. I think most of his deals were done with cash though. I'll share any good info I might find.
@Justin Charpentier Sounds good man, let me know. Shoot me a PM if anything or try and find this thread again
Hi Matthew!
I think this is an awesome thread. I am such a lurker on Bigger Pockets! I love reading the post in the forum and I find the information that people share to be very valuable. Okay, so here are my stats.
I am currently working on my 2nd flip here in Orlando. My first flip was a success and I was so grateful for the research and preparation that I did prior to starting my flipping business. Although, I am a active licensed real estate agent, I have a real passion for flipping. However, I know there is currently a trend towards wholesaling. And, in my humble opinion, I believe wholesaling is a lot more challenging than people are really sharing, and for my own personal choices, flipping feels like the right fit for me.(Everyone has to find their own way).
To finance all of my deals I used Patch of Land and I discovered them here on BiggerPockets. I like that they gave me a chance as a first time flipper and they seemed user friendly. In addition, they funded my deals with patience and walked me through the process as a newbie Investor. Also, each time I close a loan with them, they give me better rates.
Although, I could have flipped in my own name, I like my privacy and like to keep my business separate from my personal life. I did create a LLC and I close my investment properties in the LLC's name. For me it provides enough comfort and space between me and my company. (Plus some hard money lenders require you to have some sort of corporation or LLC in order to fund, but some do not. Be sure to check with your lender). By me closing in the LLC's name, my credit was used as a guarantee on my loans, but they didn't show on my credit report as a open credit line. (Please understand if I had defaulted on the loan, it would have ultimately went on my credit).
Honestly, my biggest challenge is finding qualified, affordable, ethical contractors. I prefer to work with licensed general contractors and people who understand my vision for the flip. Contractors are notorious for not staying on their timelines, and I find it difficult to keep them on my time schedule. Anyone who knows a good contractor, please PM me and share. :)
For 2017, I am looking to find a few buy and hold multiplex’s because I want to continue to grow my portfolio. In addition, I would like to ultimately have enough money to fund ALL of my own deals, even though I know this will take time. I definitely will continue to flip and find great deals.
I think Central Florida is a great community to invest in and we are definitely in an upward transition in many industries in the area. I will continue to stay plugged in to Bigger Pockets and feel free to ask me any questions. ;) I hope that helped!
@Kaynea Bingham Great story and right off the bat would love to come check out the flip you are doing in Orlando, what neighborhood is it happening in?
I can agree to disagree with wholesaling. It is good for the newbie investor, to get their name out there and start networking until you build up enough capital to secure a loan to do something else in REI. Shows you the ropes of the business, gets you familiar with different neighborhoods and things of that nature.
Patch of land is private or hard money it looks like? An LLC would defintiely be the way to go, it's not like to cost a ton of money to open one up anyway. I already have set one up but not really familiar with what to do with it know hahaha since I havent actively starting flipping etc... Mainly retail and wholesaling.
MF is a different story but tends to be the way I saw a lot of people talking lately. I am going to erach out to you via PM andsee if we can set something up. Thanks for the reponse!
I used cash on hand and a margin account to fund my first flip. Pretty much made every mistake possible and the total flip took 18 months from purchase to sale.
That said I did a total renovation of a historic home. My final net profit (after fees, taxes etc) was 65k and a little north of 18% un-levered return on the money.
Planning to continue going at this full time and will likely move my business soon. Future deals will be financed with Hard Money
@Jeffrey Stasz would you mind explaining a margin account?
Was this all ont he same flip that after 18 months you still profitted 65k? If so that is still a good ROI!
Another vote goes for HML, I think I am picking up a trend here hahah
@Matthew Rollo a margin account is a loan based on the value of your stock portfolio. They typically have a very low interest rates.
A little more about my first deal: I was in marketing and was considering going back to school to get a MSRE. After talking with several people and doing some more research on founders of major development firms, I concluded it was not worth the time and monetary investment. So, rather than go to school I bought a house, quit my job, and signed for classes at the school of hard knocks.
Because I was doing this to learn as much as I was doing this to make money I took a different approach.
First: I acted as my own GC. I managed my subs, worked with engineers, found good suppliers etc. Yes, I ate a ton of **** by doing it this way. And yes, it cost me more time and more money to do it this way. But I now know 10x more about residential construction then most flippers at my deal level. It also means I am capable of taking on bigger projects, with longer time frames but much higher returns. So, it was an investment in the future of my business.
Second: I focused on building a portfolio of stunning work, not maximizing the ROI of each project. My goal is to move into new construction and larger developments. In working with investors thus far the quality of your portfolio matters as much as the returns. Investors want to see quality work that can withstand pricing pressures in a down market. Also, if you really want to grow a RE Development business, you need to demonstrate excellence in housing before moving into more complex commercial projects. Finally, I think quality and higher margins are a safer business model then volume and low cost.
I thought I would spend about 80k on the rehab. By the time I was done I had spent 160k total (again including all commissions, permits, professional fees etc). Now because I am conservative I still made a solid profit and was able to pay myself 65K and return 10% to the capital that made the deal possible. So, in paying myself and returning to my capital base I made a touch under 100K in 18 months. Not great, not terrible.
I am sure there will be folks on the board that will take serious issue with my approach. And I pretty much read @jscott's and did the opposite. I think his advice was sound, but I was not in a market that supported making 10k on a flip. So I needed to aim for gross margins closer to 200K and net margins of around 100K.
Hope that helps.
JS
@Jeffrey Stasz I am sure the rehabs in the big apple are much different and more time consuming then most markets. That is a very cool and impressive story. You seem to know what you want to do and the direction to take to achieve that goal and I could definitely appreciate that.
Isn't the school of hard knocks and actual institute in Brooklyn? hahah Seems to be a lot of graduates from there on this website!
Good stuff everyone. As an investor and lender I am always intrigued by what motivates you and what is your "WHY". All too many jump into this business after attending seminars working with various guru's watching reality television etc yet do not fully understand what you are getting into. This is a business and it takes a great deal of knowledge, massive action, and for lack of better words, blood seat and tears to make it work. This is a relationship business, and if you are serious you will have to have skin in the game as well.
Building your team is imperative and it is a must that you surround yourself with those that know what you do not, and can do what you cannot. I've had many beginners say to me. "so what if I fail you get the house anyway". Some lenders will gladly set you up for failure and that is simply the way they do business while others don't want your failures their job is to deploy capital responsibly, they want you to come back for more. Your ability to perform, credibility of your team, and ability to repay the loan is what we truly look at then we'll look at your deal. Using leverage responsibly to grow is great but all too many will over-leverage and if your memories are still intact our last crash was a great example of over-leveraging. Market cycles & knowing what strategies to use in each cycle, what economic indicators should you focus on to ensure you are staying ahead of market conditions is all part of the diligence process you need to understand. That is if you intend on making this a career.
Your exit strategy and ability to handle plans B C & D if necessary will be scrutinized and should be. This isn't childs play though for some veterans of this business it may seem that way due to repetition. They have their systems, tools and resources and operate in machine like fashion which is what everyone aspires to do yet so few actually accomplish.
If you are not using an entity it speaks to your lack of knowledge which is also an alarm for a lender. Someone gets hurt on your project and files suit against you they can come after everything you have not just the asset. Building wealth is just as much about preserving it gang. Even if you are wholesaling set up your entity get the right "counsel" involved to guide you and operate it like the business it is. Reach out to a local flipper or whatever strategy it is you wish to engage in offer them some value in return for knowledge about how things really work maybe partner on a deal or two.
Here is an excerpt from a friend & newbie "flipper" Beth Franken who is documenting her journey through her rehab/flip for Tribune newspapers,
"No doubt I wonder what the heck did I get myself into sometimes. So many things I cannot control both global and personal, inflation, bubbles in the market, the ups and downs of my day job, all those unpredictable elements that threaten the promising outcome I was so excited about at the beginning of the project.
Not to be melodramatic, but with the wrong combination of forces I could not only lose the flip but my own home too since I took out the HELOC to do this. This I'm learning is what you must have to flip a house:
"Good math skills (or a brother with them). A trust in the market and/or faith in witchcraft, and finally you must have nerves of steel. Certainly the risk is calculated and I did my due diligence, but the gamble of it all comes from the forces and phenomena I have no control over"
Good Luck to all and don't be afraid to fail, those who learn from their mistakes and continue to push forward will succeed.
@Sam Ally Great information and as always appreciate ay response to this thread as the topic is heating up. I notice you are local in Orlando so i will be shooting you a PM to ask about a couple other things.
You have layed out a solid foundation for anyone coming across this thread. Just by reading the posts most people tend to be using HML to secure and fund their first flip. Seems to be the same case for the 2nd, 3rd and so on. You have set a standard for what a lender will be looking for when the time comes to approach one for a loan and how to go about it.
How cool would it be to get this thread trending and get a ton of insight on these situations?!?!?! There is great information and everyone who has posted to it has come with a different aspect and it's all awesome to read!
So it appears many (not all) of the responses thus far are from beginners so here is one from a seasoned pro.
My first flip project was a rental unit gone bad and required full renovations, plus I needed to get out of it as at that time, I was a rookie and made a big purchase mistake (buying in the wrong area from an agent that only had self interests). The rehab was funded by my partner, it was out if state, and I did some things myself and hired subs for the rest. Not a fun experience to say the least so the take away here is 2 fold, avoid long distance rehabs and make sure you buy right in good areas.
I did several other rehab projects out of state that were rentals which I wanted to sell so I could use the capital in my own backyard. This did afford me some rehab experience and lessons learned.
My first local flip was purchased for just north of $300k and my rehab was around $65k if I remember correctly. 95% of it was funded by a private investor at 10% interest and no payments or costs of loan. I acted as the GC and hired each sub as mentioned above by @Jeffrey Stasz That afforded me a valuable learning lesson on what things cost in my local area, how long they should take, and what order things should go. As I got more experience, I was able to build a solid and stable team of sub contractors. This certainly takes more effort but did increase my returns and also was the reason that I am such a good designer today (without any formal design education). Today, all of my rehab flips are funded with a combo of private money and my own with a recent addition of partnership equity stakes in my deals for those with capital looking to partner with an experienced rehabber.