Learning to Flip Houses
Flipper/Rehabber · Dallas, TX · Member since 2019 · 1 post · 0 votes
Hi!
I’m Derrick. I’m wanting to start flipping houses.
My plan is to purchase an LLC in order to get a loan from the bank to start. I know I don't have to go this route but I don't know any private investors to lend the money. Is this a good start?
Also I live the DFW area. [Solicitation Removed by Moderators]
Unless things are drastically different there than they are here, you can't just get an LLC and get a loan. The LLC needs 2 years of tax returns to prove income to get a loan, just like a self employed person. Have you ever done this with someone else or for someone else? Your best bet is to find a local meet up, find a successful flipper that does what you want to do and ask them for a job or to help them for free to learn the ropes. If you get paid, have the LLC formed and have them pay the LLC for your work and you will get paid through the LLC as a pass through. You might also find people there with cash that are eager to invest and if you know what you're doing you can start instantly. If you don't know what you're doing you can still start, you'll probably just lose money until you learn the right lessons.
That is often true with conventional bank financing but the poster is talking about hard money and private money loans which it is preferred to have an entity.
The poster said he was going to start an LLC to get a bank loan because he didn't know anyone that did hard money
You are correct, thank you for pointing that out, I somehow misread the post and I’m even wearing my reading glasses so I have no excuse.
With that info, @Bryan Devitt is correct, you will have a very difficult time getting a bank loan to your newly formed entity n which case you will need to buy in your personal name and then transfer title to your new entity which will require a few other tasks too.
There are literally hundreds of hard money lenders out there, you should look into that option or find a money partner.
Hi!
I’m Derrick. I’m wanting to start flipping houses.
My plan is to purchase an LLC in order to get a loan from the bank to start. I know I don't have to go this route but I don't know any private investors to lend the money. Is this a good start?
Also I live the DFW area. If there’s any one who mentors/coaches on how to flip I’m interested!
Bank financing will be much cheaper than private money so that’s a great way to fund your deals. Most investors do not have the funds or cannot borrow from the bank when getting started that’s why they use hard money and private lenders.
One of our entities operates this way, as an LLC to borrow from hard money lenders, and it makes being able to close on deals quicker since you have the resource readily available to handle these types of real estate transactions. And as mentioned above: it is ultimately the cheaper borrowing-route.
Some hard money lenders are better than others - so make sure you've researched at least a few sources to find which one will work best for your financial situation. Keep in mind that you may not always use the same lender for every investment.
Sounds like you're on the right track to get started!
Best of luck!!
Welcome to Bigger Pockets. As @Greg Dickerson said, borrowing from a bank/traditional lender will be cheaper. On average, 3 - 4% cheaper when looking at the purchase and rehab costs. They will "normally" require you to make a down payment as well. This can range from 10% to 25% depending on the type of loan and institution you go with. It will be harder as you are starting out because you don't have a proof of concept yet. Once you establish yourself, the lending options will grow.
As @Alora Glaze said, vet your lender well. Not all lenders are created equal. The cheapest option will normally be best but also look at things like turnaround times on draw funds, closing time, ease of use from past reviews, etc. Some lenders may work better for different property types. It will involve doing some leg work but will help you out in the end. Take the time to research. Hard / Private money will be more expensive than traditional lenders (again by 3 - 4%) but will be much lower out of pocket with down payments from 0% to 15%.
Don't wait to take action but do your research first. Start checking with local banks. What do they want to see to lend to an REI company? What are their rates? Do they cover construction funds? Start checking with hard money lenders to see what are their property and investor requirements? What are the rates? What is the down payment required?
Once you get that info, you will have a good starting point.
If you plan to run a business of flipping and not a hobby, then yes, you should form an entity for a number of reasons. Asset protection, liability protection, proper tax planning, etc. To form an LLC or S Corp, or any other entity - you should be speaking to your real estate attorney and CPA to discuss what you will be doing, how you will do it and then they can properly advise you as there is no one size fits all.
Generally speaking, an S Corp is better for flipping (or LLC with S Corp tax election) but again, speak to your CPA.
The above is not to be construed as tax or legal advice.
Unless things are drastically different there than they are here, you can't just get an LLC and get a loan. The LLC needs 2 years of tax returns to prove income to get a loan, just like a self employed person. Have you ever done this with someone else or for someone else? Your best bet is to find a local meet up, find a successful flipper that does what you want to do and ask them for a job or to help them for free to learn the ropes. If you get paid, have the LLC formed and have them pay the LLC for your work and you will get paid through the LLC as a pass through. You might also find people there with cash that are eager to invest and if you know what you're doing you can start instantly. If you don't know what you're doing you can still start, you'll probably just lose money until you learn the right lessons.
Unless things are drastically different there than they are here, you can't just get an LLC and get a loan. The LLC needs 2 years of tax returns to prove income to get a loan, just like a self employed person. Have you ever done this with someone else or for someone else? Your best bet is to find a local meet up, find a successful flipper that does what you want to do and ask them for a job or to help them for free to learn the ropes. If you get paid, have the LLC formed and have them pay the LLC for your work and you will get paid through the LLC as a pass through. You might also find people there with cash that are eager to invest and if you know what you're doing you can start instantly. If you don't know what you're doing you can still start, you'll probably just lose money until you learn the right lessons.
That is often true with conventional bank financing but the poster is talking about hard money and private money loans which it is preferred to have an entity.
Unless things are drastically different there than they are here, you can't just get an LLC and get a loan. The LLC needs 2 years of tax returns to prove income to get a loan, just like a self employed person. Have you ever done this with someone else or for someone else? Your best bet is to find a local meet up, find a successful flipper that does what you want to do and ask them for a job or to help them for free to learn the ropes. If you get paid, have the LLC formed and have them pay the LLC for your work and you will get paid through the LLC as a pass through. You might also find people there with cash that are eager to invest and if you know what you're doing you can start instantly. If you don't know what you're doing you can still start, you'll probably just lose money until you learn the right lessons.
That is often true with conventional bank financing but the poster is talking about hard money and private money loans which it is preferred to have an entity.
The poster said he was going to start an LLC to get a bank loan because he didn't know anyone that did hard money
Unless things are drastically different there than they are here, you can't just get an LLC and get a loan. The LLC needs 2 years of tax returns to prove income to get a loan, just like a self employed person. Have you ever done this with someone else or for someone else? Your best bet is to find a local meet up, find a successful flipper that does what you want to do and ask them for a job or to help them for free to learn the ropes. If you get paid, have the LLC formed and have them pay the LLC for your work and you will get paid through the LLC as a pass through. You might also find people there with cash that are eager to invest and if you know what you're doing you can start instantly. If you don't know what you're doing you can still start, you'll probably just lose money until you learn the right lessons.
That is often true with conventional bank financing but the poster is talking about hard money and private money loans which it is preferred to have an entity.
The poster said he was going to start an LLC to get a bank loan because he didn't know anyone that did hard money
You are correct, thank you for pointing that out, I somehow misread the post and I’m even wearing my reading glasses so I have no excuse.
With that info, @Bryan Devitt is correct, you will have a very difficult time getting a bank loan to your newly formed entity n which case you will need to buy in your personal name and then transfer title to your new entity which will require a few other tasks too.
There are literally hundreds of hard money lenders out there, you should look into that option or find a money partner.
@Derrick Castile Congrats on taking the first step. I am also new and there is plenty of learning to do. But don't let that stop you from taking action. Read books and use the bigger pockets calculators. Your on the right track just stay focused. A bit of advice finish the flip before you start the flip completely.
Good luck build relationships
Most people look to hard money lenders or private investors. Both look at the quality of deal and person rather then credit scores or income.
Best of luck in all your endeavors.
Just as a note many hard money lenders will consider credit and liquidity, but it's often not a prohibitive factor.
@Derrick Castile LLC and bank loan are both good ideas. If you currently have a fulltime job and good credit and some cash reserves, you may be able to get a bank to lend you money to purchase an investment property. Otherwise you probably need to start with a hard money loan. Most hard money lenders prefer to lend to an LLC rather than you as an individual. They will generally require you to have some cash reserves and decent credit.