Chicago area flip, cash or finance?

4 Replies

Hey BP,

My names Jonathan I am new to the bigger pockets community.  I am nearing what should be my first successful flip (in Louisville, KY) and am looking for advice on how to move forward.  I believe I have the perfect contractor/project manger and have the right contacts to pursue real estate investing in the Chicago land area.  I should have ~$200k cash to use on my next investment.  My question is whether it makes more sense to find a smaller unit (maybe SF foreclosure) and pay cash or do a few conventional loans to get 2 or 3 properties?  Does it make any sense to try to finance and flip a multi-family instead of 2 or 3 SF? Also any suggestions on which Chicago suburbs have more potential than others?  Thank you for the help!

Hello @Jonathan Klemm ,

Welcome and congrats on you first flip. 

Lets start with your goals

  • Why are you investing? 
  • What is your end goal? 
  • How will you reach that goal?

It makes it easier to give advice once you have fine tuned your goals.

For instance, If I had 200k cash I would do 5 flips at once. (For me I would do 5 BRRR's at a time because I like the passive income of rental properties)

  • 100k for 20k down payment on each property with a hard money or private financing on the rest. You can find 10% down with rehab costs covered once you set up a relationship with a lender. (Or even better terms, I've seen $0 down while using another property as collateral)
    • Or buy 1 house at a time all cash. (Slower growth because you aren't leveraging your money)
  • I would keep 100k emergency fund. (I like to plan for the worst and sleep at night...) 
  • Build your contractor/project manager team up to handle 5 houses at a time. You may want to only do 2 houses to start, remember slow and steady building! 
  • Single family homes are "easier" to flip because the buying pool is bigger than the 2-4 unit market. Someone looking for a multifamily has a different mindset as opposed to a first time home buyer. 
  • Connect at your local meet up for a answer to the Chicago suburbs. Remember, don't ask @Joshua Dorkin about Chicago real estate;) 

Best of luck Jonathan!

@Jonathan Klemm - I'm going to have to agree with @Scott Hollister . Cash buying usually is not the way to maximize growth. The thing to remember is that leverage maximizes your buying power which in turn can maximize your ROI. If you do plan to put $100K to the side for an emergency, soft costs and debt service (which is good advice) then you have $100 to invest. Now, if you are flipping this gives you buying power of more that $650K and that does not include the potential rehab financing that you can get with nothing else down add that in and we can get close to about $900K possibly $1M depending on the ARV of the assets you buy. That's not bad for only having to cough up $100K plus transaction costs out of pocket. I hope that helps. If you need anymore info feel free to reach out to me.

@Scott Hollister - I guess the reason I am considering using cash is to come across more distressed properties and use my my trusted contractor to the fullest. I think taking in 5 BRRRR would be taking on to much since I want to keep my full time job for now.

Isn't it difficult to get 5 mortgages at once?

I feel like since I have such a trusted contractor (which is hard to come by), I am better off starting with a couple flips of distressed properties. Thoughts?

@Nathan Click - thank for the advice! Would your advice change if you knew you'd be working with a top notch trusted contractor?

@Jonathan Klemm exactly, grow with you comfort level. 

And if you found 5 great deals at once, presented them to a hard money lender, BRRRR them with your team, then take out a portfolio loan on all 5. (This is just the route I would take, there might be a better way. I only know what I know in my limited knowledge, we are all still growing here on BP)

Now there are many steps in between the above route. I would make connections with banks, lenders, contractors, etc. before you buy 5 houses at once. Maybe this time around you do two houses? 

I know you trust your contractor but he can only work on one house at time. What if he gets hurt? Decides to leave the business? Has to complete another deadline before yours? Always plan and have back ups, especially contractors. 

Remember identify your goals first, if flips will help reach your goals then continue on that path. If your goal is financial freedom, what does that look like? Specific, how many dollars? 

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