Introduction & my game plan

18 Replies

Hello! I am new here and sort of stumbled upon the site while trying to answer some specific questions and brainstorm my way (somewhat blindly) into my goals, and I see now theres so much more info here that I'm going to be reading for a while! I'll start off by saying that I am currently a foreman for a home builder, and so am approaching the world of house flipping from the Contractor side as opposed to the Real Estate side, and with that in mind, please pardon my ignorance in many areas--although I think this may be why most of the information I find doesn't quite fit my needs.

My name is Shawn, and I am trying to work my way into my first "official" home flip. Over the past few years, my wife and I rehabbed our home and sold it with enough of a profit to fund a move from Central Oregon to Kansas City to where my wife's family lives, purchase a new (albeit much smaller) home and make a few improvements to it, cover medical expenses for our baby boy who was born a couple months after we moved, and allowed me to take a few months off work to stay home with my little family. Along with the move, I made a big career change from a sales and product-line-management job that paid great and in most respects was a DREAM job, just not my dream...into doing what I really enjoy, which is working on houses. 

As above mentioned, I am currently the foreman for an small, but established Home Builder and Remodeler, and have been honing my skills and knowledge for the past year, and mustering up the courage to start my own remodeling and home improvement business. On our most recent project (a HUGE remodel for some pretty particular clients...) I started thinking about the kind of customers I wanted to attract, and that "Man, I really wish I could just work for myself..." and that's when my ideas started to form. I have always been interested in flipping homes, but figured a person had to have quite a bit of money in the bank to get going, and as a means to survive until the property sold--but it occurred to me that perhaps I could hire myself (or rather my newly formed construction company) to be the prime contractor on my flips, and therefore I could take a draw on the construction funds during the flip so I wouldn't starve to death (you know, until I'm swimming in cash and don't have to worry about those things, right??). Of course when the property sold I would then also benefit from the profits on the sale. 

I can't seem to find any info on anybody who does this and so am nervous that maybe I'm missing something? I realize this model doesn't scale very well beyond more than a few houses at a time, and only a handful per year, but at this point in my life, I'm ok with that. I am a pretty simple guy, and enjoy the satisfaction of a hard days work with my bare hands that I used to create something, or make something better. Perhaps that will change some day, and I'll want to spend all my efforts hunting for new deals, and will hire out all my work, and that's ok--I'll adjust when the time comes, but for now...I want to get my hands dirty. 

So I ask, is this a feasible plan overall? Or should I consider getting into flipping from a different angle?

More specifics about my ideas here: I plan to use a hard-money lender to finance the flip, and will tap into my current home's equity to cover closing and carrying costs, as well as contribute a little to the capital of my LLC so I can cover the initial construction work until I can take a draw on the construction funds from the loan based on the value I have put into the house (I gather that is how hard money lenders operate, yes?). Essentially, I intend to run my LLC as if I had been hired to do the work by any other client--the client will just happen to be me, wearing my real estate investor hat. I intend to hire an agent to help me find and sell my homes until I see it appropriate to get my license and handle that aspect myself.

Thanks in advance for any feedback or thoughts!

Originally posted by @Shawn Finley :

Hello! I am new here and sort of stumbled upon the site while trying to answer some specific questions and brainstorm my way (somewhat blindly) into my goals, and I see now theres so much more info here that I'm going to be reading for a while! I'll start off by saying that I am currently a foreman for a home builder, and so am approaching the world of house flipping from the Contractor side as opposed to the Real Estate side, and with that in mind, please pardon my ignorance in many areas--although I think this may be why most of the information I find doesn't quite fit my needs.

My name is Shawn, and I am trying to work my way into my first "official" home flip. Over the past few years, my wife and I rehabbed our home and sold it with enough of a profit to fund a move from Central Oregon to Kansas City to where my wife's family lives, purchase a new (albeit much smaller) home and make a few improvements to it, cover medical expenses for our baby boy who was born a couple months after we moved, and allowed me to take a few months off work to stay home with my little family. Along with the move, I made a big career change from a sales and product-line-management job that paid great and in most respects was a DREAM job, just not my dream...into doing what I really enjoy, which is working on houses. 

As above mentioned, I am currently the foreman for an small, but established Home Builder and Remodeler, and have been honing my skills and knowledge for the past year, and mustering up the courage to start my own remodeling and home improvement business. On our most recent project (a HUGE remodel for some pretty particular clients...) I started thinking about the kind of customers I wanted to attract, and that "Man, I really wish I could just work for myself..." and that's when my ideas started to form. I have always been interested in flipping homes, but figured a person had to have quite a bit of money in the bank to get going, and as a means to survive until the property sold--but it occurred to me that perhaps I could hire myself (or rather my newly formed construction company) to be the prime contractor on my flips, and therefore I could take a draw on the construction funds during the flip so I wouldn't starve to death (you know, until I'm swimming in cash and don't have to worry about those things, right??). Of course when the property sold I would then also benefit from the profits on the sale. 

I can't seem to find any info on anybody who does this and so am nervous that maybe I'm missing something? I realize this model doesn't scale very well beyond more than a few houses at a time, and only a handful per year, but at this point in my life, I'm ok with that. I am a pretty simple guy, and enjoy the satisfaction of a hard days work with my bare hands that I used to create something, or make something better. Perhaps that will change some day, and I'll want to spend all my efforts hunting for new deals, and will hire out all my work, and that's ok--I'll adjust when the time comes, but for now...I want to get my hands dirty. 

So I ask, is this a feasible plan overall? Or should I consider getting into flipping from a different angle?

More specifics about my ideas here: I plan to use a hard-money lender to finance the flip, and will tap into my current home's equity to cover closing and carrying costs, as well as contribute a little to the capital of my LLC so I can cover the initial construction work until I can take a draw on the construction funds from the loan based on the value I have put into the house (I gather that is how hard money lenders operate, yes?). Essentially, I intend to run my LLC as if I had been hired to do the work by any other client--the client will just happen to be me, wearing my real estate investor hat. I intend to hire an agent to help me find and sell my homes until I see it appropriate to get my license and handle that aspect myself.

Thanks in advance for any feedback or thoughts!

Congratulations on the growing family. You want to post a question such as "Flips & Financing - Does FHA allow draws for personal expenses during a rehab" or " Does a 203K Rehab Loan allow personal expenses draw". Keep it four or five sentences but no longer than your first paragraph you've written here. People will simply skip over it if it is too long.

Mike has a point and if you can do your own work on a property you are coming into this with a huge advantage. You can outbid people because your repair costs will be less. You can also discern the difference between a good and bad contractor once you get a big business going.

Thanks for the comments, I’ll keep my posts much shorter in the future, just wanted to paint a full picture for my first post.

@Shawn Finley welcome and you are simply missing some key info. I started flipping over in Parkville area nine months ago. You don't need huge sums of money. Nor do you need hard money lenders. As long as you can come up with 20% of the purchase of a property there is a great local bank that will fund the rest. Which will allow you to pay yourself as the prime contractor and pay subs and for material.

How it works: (easy math example) You find a property where the ARV would be 150k fixed up. It needs 50k of work and you can buy the property for 70k. (these are realistic numbers for where we live) In this scenario, you would simply need to bring 28k to the table. The bank would lend the additional 42k to finish the purchase and up to 80% of the ARV of 150k. 80% of 150k = 120k minus the 70k you used to purchase, which gives you 50k to do the renovations. Rates are 6% interest on this loan per month and you have six months to complete it. (these terms are unbeatable)

We use this product on almost all of our flips. We are finished 5 flips in 9 months but are 2 weeks away from having two additional flips done. (So 7 flips in 9.5 months, plus more under contract)

Anyways, don't reinvent the wheel. Reach out to us who are doing this full time. (I am a MO agent and GC) Join the Northland REI meet up group in Parkville. Lots of people, including myself, who will gladly help you out as you start this journey.

  

Hope to hear from you soon. Dan

@Shawn Finley , welcome! There is a lot
Of great info on BP. I don’t have any construction or major rehab experience, but whole heartedly recommend you check out the E myth and learn about working on your business not in it. Eventually you will tire of swinging hammers and toiling under the sun/rain all while enjoying that sweet smell of lumber. Eventually you will want to take a month vacation with your family while your business continues to rehab properties and make you money. Eventually, etc...!
The E Myth, lots of other books, and BP will set you up to succeed. Welcome and let us know how 2018 works out for you new adventure.
Keric

@Dan Krupa That’s good info, thank you! I’ll check out the Meetup. No doubt those rates and that plan are unbeatable, but showing up to closing with $28k for a lowly construction worker trying to bootstrap his way into home flipping is a pretty big hurdle on its own—which is why I was planning to go with a hard lender initially, until I had enough cash available to find reliable financing through other avenues. Is there another resource here I’m missing?

Originally posted by @Dan Krupa :

@Shawn Finley welcome and you are simply missing some key info. I started flipping over in Parkville area nine months ago. You don't need huge sums of money. Nor do you need hard money lenders. As long as you can come up with 20% of the purchase of a property there is a great local bank that will fund the rest. Which will allow you to pay yourself as the prime contractor and pay subs and for material.

How it works: (easy math example) You find a property where the ARV would be 150k fixed up. It needs 50k of work and you can buy the property for 70k. (these are realistic numbers for where we live) In this scenario, you would simply need to bring 28k to the table. The bank would lend the additional 42k to finish the purchase and up to 80% of the ARV of 150k. 80% of 150k = 120k minus the 70k you used to purchase, which gives you 50k to do the renovations. Rates are 6% interest on this loan per month and you have six months to complete it. (these terms are unbeatable)

We use this product on almost all of our flips. We are finished 5 flips in 9 months but are 2 weeks away from having two additional flips done. (So 7 flips in 9.5 months, plus more under contract)

Anyways, don't reinvent the wheel. Reach out to us who are doing this full time. (I am a MO agent and GC) Join the Northland REI meet up group in Parkville. Lots of people, including myself, who will gladly help you out as you start this journey.

  

Hope to hear from you soon. Dan

Sorry--posted my reply from my phone and wasn't able to figure out how to link your name. Initial response above.

@Shawn Finley - team up with someone. Lots of people have that cash. That or find someone who will find the deal and finance it and you do the work. Then split the profits. 

I have bought a few deals that were 60k or less here.  If you do one good flip that will give you the down payment to do that deal next time solo. Go with what you think is best but why pay 5k to 6k in interest when you could pay $600 in interest and a 1k loan org cost. 

Hope to see you at the meetup. 

I agree with Mike S. I just skipped over the whole posting and went straight to the comments. Sorry Shawn. Lol

@Shawn Finley

I think you're in a great position.  The hardest part of a flip is estimating rehab and dealing with contractors, and it looks like that will be the easiest part for you.  It's okay to go slow in the beginning until you have the funds to do multiple at a time and hire out.  Just make sure that your lender gives you a long-enough loan term (i.e. a year).  I see investors who do their own work often taking longer to do the flip, especially if it's their first time.

Unfortunately, most hard money lenders will require you to have at least 20% of the costs of the project (purchase + rehab).  Even ones that advertise that they'll lend 90-95% LTC (loan-to-cost) will want to see that you have enough funds to cover the down payment, points, closing costs, 3-6 months of interest payments, and funds to front the rehab (since their rehab loan is given to you in disbursements as the rehab progresses).  That usually equates to about 20% of the deal.

Originally posted by @Dan Krupa :

@Shawn Finley - team up with someone. Lots of people have that cash. That or find someone who will find the deal and finance it and you do the work. Then split the profits. 

I have bought a few deals that were 60k or less here.  If you do one good flip that will give you the down payment to do that deal next time solo. Go with what you think is best but why pay 5k to 6k in interest when you could pay $600 in interest and a 1k loan org cost. 

Hope to see you at the meetup. 

I hadn't thought of it from that side, that does sound like a better way to get my feet under me, as well as ease me into the process alongside someone who's done this before. Thanks!

Originally posted by @Nghi Le :

@Shawn Finley

I think you're in a great position.  The hardest part of a flip is estimating rehab and dealing with contractors, and it looks like that will be the easiest part for you.  It's okay to go slow in the beginning until you have the funds to do multiple at a time and hire out.  Just make sure that your lender gives you a long-enough loan term (i.e. a year).  I see investors who do their own work often taking longer to do the flip, especially if it's their first time.

Unfortunately, most hard money lenders will require you to have at least 20% of the costs of the project (purchase + rehab).  Even ones that advertise that they'll lend 90-95% LTC (loan-to-cost) will want to see that you have enough funds to cover the down payment, points, closing costs, 3-6 months of interest payments, and funds to front the rehab (since their rehab loan is given to you in disbursements as the rehab progresses).  That usually equates to about 20% of the deal.

 Hmm, it's sounding more and more like teaming up with someone to get going may be a better avenue to clear the funding hurdle.

Does your primary have enough equity for a HELOC? Could be another funding avenue for you.

Hey Shawn, welcome to the game. My husband and I started flipping 1+ year ago. He acts as GC and initially did most of the work in the first rehab and has started developing his subs with each flip we do. That seems like the route you are searching for too. Start slow and do it right, including most importantly, buying it right. Let me know if you ever want to chat!

Shawn, welcome to BP! I am going to come at you from a potentially different angle here...

Are you a GC?

If so, you are possibly one of the hottest resources in REI—an investor-friendly GC. It may benefit you to start out by GCing for a few investors from BP in the KC area (there are several pros in KC killing it; networking at REIAs will be huge).

Once you have enough profit from GCing others’ deals, you can turn that cash into down payments. May take longer to secure that down payment, but it will be a bit less risky than the HELOC and not as spendy as a HML.

Thoughts?

Originally posted by @Victor S. :

Does your primary have enough equity for a HELOC? Could be another funding avenue for you.

 It does, and that's my plan at the moment--using my current homes equity to cover down payment/closing costs, carrying costs, and paying my living expenses during the flip (or at least first phases of construction). 

Originally posted by @Timothy Doenges :

Shawn, welcome to BP! I am going to come at you from a potentially different angle here...

Are you a GC?

If so, you are possibly one of the hottest resources in REI—an investor-friendly GC. It may benefit you to start out by GCing for a few investors from BP in the KC area (there are several pros in KC killing it; networking at REIAs will be huge).

Once you have enough profit from GCing others' deals, you can turn that cash into down payments. May take longer to secure that down payment, but it will be a bit less risky than the HELOC and not as spendy as a HML.

Thoughts?

That's a very good point and something that's been going through my mind since I've read some of the other posts above. I am not a "GC" in the official sense yet, but am starting my LLC so I can legally advertise and perform those services...I'll have to think on that approach, that could be a good stepping stone.

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