I’m 20, brand new RE agent in Arizona. My grandparents want to loan me 100K so I can flip a house and make a return! However I have 0 experience with flipping/ investing. Should I just go all in all chips on the table and learn that way? Any thoughts/ tips/ input??
I'd probably not have a tendency to put a family member's money at risk. Instead, perhaps look into alternative financing so that if things don't pan out, you can then tap into that $100k your grandparents are willing to pony up. I'd probably also exercise a bit more caution than just "going all-in with all chips on the table." Sure, there are learning experiences, but those bridges ought to be crossed when you get to them.
Since you're new with no experience, you should also spend some time learning the fundamentals of real estate valuation, assessing property so as to know the component parts of a property and perhaps some basics in rehabilitating homes. Maybe shadow someone else doing flips in your area to get a handle on what they do so you can recreate parts of their business model. For that, I'd suggest either a BiggerPockets meetup or a local Real Estate Investors Association meetup. You definitely want to network and take advantage of the connections the more experienced folks have made. Otherwise, when you jump in with all chips on the table, you might find yourself in a bind picking out random contractors that don't know what they are doing while at the same time overcharging you.
I hope that sends you in the right direction.
Ask them if they're okay losing all 100k. If they say yes then maybe you considering proceeding. Otherwise I don't think I'd go that route
@Odie Ayaga even if they’re ok with losing the money, you obviously want to be successful. You may want to partner with a experienced investor, get a mentor but that’s a huge opportunity to get a great return. You may be able to use hard money or private money and just a little of the 100k to maximize return as well. Just my opinion.
Get a copy of “the richest man in Babylon” for both yourself and your grandparents (but more for yourself). It’s a short read (about 90 pages) but offers a great deal of insight regarding how to manage your particular situation.
I guess I'll offer a little bit of an angle that others are not. There is no rush to put the money to work it doesn't sound like, so since you have your license and presumably MLS access, start researching. Take a look at the areas around your town that are selling quickly and what numbers they tend to bring. Become very confident in calculating your "ARV" (After Repair Value). If you don't know what the house will be worth when you are done, you have no business even starting. Don't calculate your "It could go for" number, calculate what price you would list at in those areas for the house to go under contract within 14 days and close quickly. This number will be more accurate.
Now with regard to selecting a property, you have a few things going for you that will put you at an advantage over other flippers (like myself).
- 1. You do not have interest or financing costs.
- 2. You are presumably willing to do a large portion of the work yourself.
- 3. You are willing to use this as a learning experience and aren't trying to make 20k off the top. (It's your first flip, if you look at it this way you'll drive yourself crazy)
- 4. You save realtor/transaction fees.
All of this being said, do not get in over your head. Don't take on a project that is out of your control and something that is difficult to budget for. The perfect flip for a newbie will typically need paint, carpet, counters, plumbing fixtures, and MAYBE some subcontracted roof, windows, electrical upgrade, furnace, etc. Here is the profile of a house that I was trying to buy but couldn't agree on numbers a month or so ago:
Work needed: Paint throughout. 2 windows. Roof on house. Water heater. New toilet and vanity. Light fixtures. Outlets and switches. countertops (cabinets were fine).
Subcontracted budget: $18,000. Self performed budget: $7000. I don't self perform but I highly considered it.
I got the seller down to $133,500 but I couldn't get him any lower. My financing charges would have been nearly $10,000 and with realtor fees on the back end, I would barely make $15,000. I won't touch a deal if there's less than $20-25k profit.
This would have been the perfect deal for someone in your position, and a low risk deal at that. Even if you mess everything up, there is only so much damage you're going to do with a light cosmetic flip. Going all in is fine, but minimizing risk and making sure you know your numbers is important.
Sorry for the long post, but I've had a good amount of success by going all in, and I didn't have the head start that you already do. Throwing yourself at it is fine... just be smart.
Phoenix, AZ is a great market. I have a friend who moved there from Indiana. He bought a nice fixer property at a price similar to Indiana. That was 3 years ago.
I'd never consider using family money unless you find a GOOD DEAL. If you don't understand the numbers learn them. I'll say from experience doing it yourself is not effective. Finding reliable contractors is imperative because it will make or break you real quick. We only have 24 hrs in day. It's never enough time (if you already work 9-5) so don't think you can DIY everything to make a buck.
I agree with the statements @Kevin M Finley made! Everything in real estate comes with a learning curve. You're young and eager. I wish I had interest in investing at that age! Get ready for the ride and good luck.
REI is risky to begin with. Why would you want to risk your family's money on blind faith? Would you also be comfortable performing surgery on them too? I know this may sound harsh, but I'd hate to see you lose your family because of a bad financial mistake. Take some time and at least educate yourself on the basics. I'd recommend reading or listening to The Millionaire Real Estate Investor by Gary Keller (free on YouTube).
Be sure you really understand the strategies that work in your market before putting all your chips on the table. For example: appreciation and cash flow are much different factors here in Phoenix than they are in other parts of the country. It is important to know how a particular property will perform in a particular market before committing to reselling it in 3-6 months.
I would reach out to someone who does this for a living or has more experience than you. It could be a remote deal for you if you find someone you trust through BP. For example, we have flipped houses for clients before and it has worked out great. I would highly recommend not going alone, but most likely I would say be involved some way that you can get more than just money out of the deal.