First Flip Completed

[Paul Guilbeau]

Due to the encouragement from the podcast with @Jay Hinrichs, I am attempting to be more of a contributing member instead of only reading everyone else's posts.

I was introduced to flipping by a good friend who had a great GC that worked on their house.  The GC approached him with the following deal:  Investor funds 100% of purchase and rehab and receives 12% preferred interest and 30% of equity.  GC works at cost, and has 70% of equity.  GC sourced deal with wholesaler.  So, I was truly just the money guy, no value add, no experience, etc.

I did ALOT of things wrong and still had a really positive experience.  The biggest thing I did wrong was I didn't take full advantage of my 800+ credit score.  I had cash for much of the project and then used 0% cash advances on two credit cards that I've had for 20+ years that have very high limits.  The end result is that my credit rating took a big hit because my credit utilization soared.  In hindsight (and what I have already done), is establish a nice Line of Credit with a couple of small regional banks secured against stock holdings that I have.  This isn't necessarily 'cheaper money', but it keeps me much more liquid AND my credit score doesn't suffer.

The numbers are as follows (rounded for simplicity):

Purchase Price:  $120,000

1st Closing Cost:  $2,000

Rehab:  $50,000

Holding Costs:  $2,500

2nd Closing Costs:  $ 17,000

Interest (paid to me):  $8,000

Sales Price:  $239,500

Net Profit:  $40,000

GC Portion:  $28,000

My Portion:  $12,000

My Return: 11.5% in 5 months, 27.5% annualized (I really hope I didn't make any math mistakes)

I am really happy about it, but must warn that this worked for me and my personality.  I learn much better from doing and experiencing.  I approached this opportunity as my 'training classes'.  I was fortunate enough to make money AND learn a ton at the same time.  I also have a full time job that allows me to be more of a risk taker.  From this one opportunity, it motivated me to find BiggerPockets and learn all I can (sidenote: the podcasts are AMAZING).  I am currently rehabbing #2 and #3 and will close on #4 and #5 in the next two weeks. 

Top 3 things I have learned:

1.  You make the VAST amount of your profit on the buy side.

2.  As Jay mentioned, when you have limited or no experience, being focused on how much money you earn might need to be secondary to the value of the experience and the credibility you build.  Said another way, 10% of a great deal is better than 100% of no deal.

3.  Don't force the deal, listen to your gut.  If a deal makes your stomach queasy, then don't do it.  That is my signal that my risk tolerance level has been exceeded.

I hope that this has been helpful to the forum.