All Forum Posts by: Ryan Johnston

Thanks for the response Tim. I really appreciate your input

Hey BP,

I recently completed my first flip! It was a rough process to say the least and it went over schedule and over budget. The house is on the market right now and it's getting a ton of attention. It has over 2,000 views and almost 100 saves on zillow. Its been toured by realtors almost 20 times but this has still yet to materialize into a (reasonable) offer. I did, admittedly, have it priced a little high in the beginning but have since brought it down 10k and now it's right on par with the rest of the comps.

The area is a little bit rough in terms of demographics and I was told that this was going to have an effect on how fast it sells but I didn't think it would take this long. I listed it about 45 days ago - average DOM is about 40 days. I got the price to a 'reasonable' price tag last week hoping that it would spark some offers. No avail. 

Last twist, I got an offer from someone with a poor credit score. He told me his credit was around 515 and he was interested in rent-to-own. I'm not too familiar with this for a flip, but my hard money loan comes due in about 5 months

The question: I'm bleeding money on this flip with my monthly hard money interest payment. The margin is getting pretty tight the lower I get. I'm getting nervous to say the least. I'm not sure if I'm just being impatient and the BP community can tell me to wait out the storm if I am. Or if I should legitimately consider this rent-to-own proposal I received. I don't really want to hold on to this house any longer than I have to. Last option is to reallllyyy squeeze my margin and drop the price to where I'm just above my break-even point.

Hey Stephen, welcome to BiggerPockets! It looks like you've got a great head start on the real estate investing mindset. It's a fantastic business to get into. Also, great to have your goal of 60k/yr laid out in front of you. Now there's about a million and a half ways to get to that goal. It looks like you're looking into the passive route of rentals which is a great way to gain wealth. Have you considered purchasing multi-family rentals? If you're trying to get 25 single family houses, that is going to be a lot to manage. Single family is a good way to get started because of the 'low barrier of entry', but it would be my personal preference to own one or two or five multifamily units that total up to 25 rentals. 

Keep continuing the education and don't be afraid to jump into a deal! It's really easy to get 'analysis paralysis' in this business! I'd recommend going to a local real estate meetup to learn more and ask tons of questions!

Best of luck to you and welcome to BP!

I'm using LendingHome on my first flip. I finished my renovation - now just trying to sell the property and get out of the loan. They also have a pretty nice loan calculator on their website you can use for free.

My numbers are below:

• Purchase Price: 71,500 - they required around 15% down so my initial loan amount was 60,700
• Fees: 
  • Paid 1,200 for service fee 
  • Since my loan was below a certain threshold, I had to pay 3,000 for origination fee
• 1 year loan at 11.75% with at $860 monthly payment - no penalty for prepayment
• Bundled in my rehab loan of 27,200 into this
• Brought my total loan value to 87,900 (60,700 + 27,200)

Important things to note: you will need 'float'. They only reimburse your rehab money, not provide it upfront. Which means you have to pay for the rehab first and then once you finish a phase of the renovation you can call them for an inspection draw to get funds out of your rehab loan. It's like a conditional line of credit.

This is not a cheap loan but it's a great way to get started if your numbers work. You must make sure that your numbers work by putting them through a stress test. What happens if you blow through your rehab budget by $10k? What happens if your project runs for the entire life of the loan? What happens if you can't sell it?

It sounds silly to think that your 27k rehab budget is going to run over by 10k.. that's an additional 37% of unplanned expenses, right? Well my A/C went out mid project and I had to repipe this house - stupid me for not planning this. I come from a construction background and this happened to me. It can happen to anyone. That being said, I don't want to scare you out of your first deal. The best way to learn is by jumping in and doing it. You can bet that I won't make these mistakes again!

If you're buying a house, there are standard contracts that are used. A realtor would be able to help you out with this. In Florida, where I'm from, we use a FARBAR contact. This just states that you are buying the property as is. There's several boxes and blanks you have to fill in. If you're buying a house to flip, I'd recommend working with a realtor for your first time. Makes learning the ropes a lot easier plus you don't have to pay for the realtor - that comes off the buyers price as a commission!

If I were to go back to when I was 18 I would definitely go to the REIA like everyone is mentioning, but I would also try to look for a job under a real estate developer/home builder/investor. Now that I've graduated college, I can't afford to take a lower-paying assistant job even though it might help. If you become an assistant to a real estate developer and show your interest to him/her that you want to be the investor in 4 years he can literally tailor your education! It'd be like getting paid to go to college!

If you're looking for quality, go with OutFast realty. They are my brokerage and they run a terrific property management program. You'll want to speak with @Jeremy Kloter 

Will said it nicely. There's really no great single way of finding a great contractor. If you're new to the world of construction it'll be especially difficult. The best way I've found so far is to get recommendations from friends and other investors. I'll want to some past work the contractor has done, get references (and call those references), look up any reviews they might have, stalk them on facebook, literally anything you can find that shows you a tell about their character. 

I come from a multi-billion dollar general contractor and they do the same thing. First thing, lets see your past work then your reputation, then your price. I just finished my first flip and I built my list of contractors very high. For each individual trade, I had 40 different contractors on the phone. Considering I needed 6 different trades, I called 240 different contractors. Might be over the top, but the faster you put systems into place, the more efficient your business will be!

First and foremost, ask for reccomendations from investors. Next here's some places I would look: Thumbtack, facebook groups, yelp, craigslist. The important part isn't where you find them, it's how you vette them!

The course doesn't cost a lot of money, but the MLS fees and brokerage fees can be costly. I took my course with real estate express online and passed on my first go around. After all the MLS fees and other stuff, it was about a $1,500 investment to get my license. I'm flipping in the Tampa area and my rational was that it'll save me money on my first flip. Downside, I'm having to market my own property now and it's not as easy as just putting it up on the MLS and waiting to rake in the offers. It might make sense for my first few to have a license but later on, I will definitely hire a realtor to list the house.

Buying the house is another story. I setup tons of searches on the MLS with my license and searched for about 4 months. After searching Tampa's tight real estate market with no success, I had to go look at other means. I went to wholesalers all around Tampa and finally found my first deal from a wholesaler I got through a recommendation. Didn't even wind up using my license!

I do like being able to put my own offers in and doing the negotiations by myself (for right now), but as I turn this flipping thing into a larger business, I'm going to stray away from doing it all myself.

I'd say you're on the right track. You'll learn a million and one things on the way but that's what being an entrepreneur is all about!

Good Luck!!

-Ryan

Seems like a good time to revist your goals. What do you want to accomplish? from what i've read, if you're focused on an end goal you shouldn't have trouble finding your next step. Maybe take some time off, maybe go into other markets, maybe move to commercial flips or multifamily buy and holds. Options are endless