NEWBIE FIRST DEAL-FLIP What is your opinion on these funding strategies? Next steps?

[Kaitlyn Aragon]

Hi everyone! 

The last post I did here in BP brought me SO much knowledge and wonderful people who have extended a hand to me. So thank you! 

I have decided on sticking with my strategy of flipping (I did a mentorship on this and know the most about the process) but also running rental rates and more market info when picking my flip to use BRRR as a backup strategy.

I am in Charlotte, NC hoping to invest locally. 

I have realized that I need to make sure my funding is secure before finding a deal (I am always on the search, though). I am not very knowledgable on the different loan options. Here is what I do know and what I am considering. Your opinions are greatly valued! 

Hard Money Loan - I do have a nest egg (40K) to put skin in the game along with the majority of it coming from the HML. It is helpful that the base of the decision comes from how good of a deal it is - also forcing me to stick to my numbers and make sure it is a good deal before pulling the trigger. I do understand the points and interest rate will be higher with a HML but it is more important to get my first deal done and learn from that then to need the biggest return I can get. As long as I don't loose money I will be happy TBH.

DCSR: I don't know much here but it has been advised to me to check it out. I have spoke with one lender who says they loan up to 100K which would mean I would need more than my nest egg here... I don't see how this would work but I think I just don't fully understand. 

Line of Credit on a Business Credit Card - This was just recently introduced to me. I don't have an LLC yet but if I did this I would need the card to be under my LLC as to not effect my credit. This feels too good to be true.. If you have experience with this please give me your input.

A lot of people say "if you find the deal the money will find you" but I am just not cool with trusting that, LOL. I feel I should lock in my funding and then go looking for the deal. What is your suggestion/experience?

What I am currently doing: connecting with as many people as possible (lenders, agents, other investors, wholesalers, no contractors yet but it's on my list), continually looking for properties and getting comfortable analyzing them, educating myself on the numbers side of things, using the flip BP calculator, learning about the market I want to invest in, viewing a few properties with an agent to get the feel of that, I have not allowed my credit to be run or any pre-approvals. 

What steps should I be taking right now in your honest opinion? 

[Tony Pellettieri]

@Kaitlyn Aragon

Hey Kaitlyn, I see you're adjusting your strategy... As you should be while you're positioning yourself to move forward on your 1st Investment. BP, as you're experiencing, is full of experienced investors willing to help guide you along the way. Keep doing what you're doing in that Regard.

We started with the Initial Fix/Flip strategy as well. About 2 weeks ago, we've decided to hold 99% of our Acquisitions local to the Charlotte area due to the High Growth this area is experiencing. Future appreciation is very likely and personally, I'd like our business to capitalize on that appreciation.

We initially looked towards investing in Charlotte, NC. The competition is currently too great for us. We are focusing on areas 45min-1hr outside of Charlotte. Much less competition in these areas, more distressed properties/sellers, higher % spreads in between Acquisition Cost / ARV, and less capital intensive overall to name just a few reasons.

HMLs can be helpful for Acquisition but depending on the price of the property, the fees can eat up much of your profit, especially if there's not much "meat on the bones". While HMLs advertise Points & Interest rates, you'll see there are MANY more Fees associated with this type of loan product, in addition to a lien being placed on your property and a short timeline typically to operate within before they foreclose if you're not able to exit/repay the loan. This is why having a SOLID plan in place is essential.

401(k) - My partner utilized this for our initial round of funding. You can borrow up to 50% of the cash value and you pay the interest back to yourself. Great Source!

DSCR loans are the GOLDEN eggs! Depending on the lender, your seasoning time will vary and determine, how much cash you can pull out overall. Some lenders will lend as low as $50K but again, the fees % in proportion to the loan amount will be high. DSCR loans are asset based, not personal DTI, and can in ideal conditions allow you to pull all of your money back out of the deal and then some, or a lot more. While they don't look at your DTI, they will, at least initially while building a relationship with the lender, check your credit score which will affect your rate.

Line of Credit - Most banks will want to see you in business for 12-18 months before issuing you a Business LOC. Great source of capital once you're able to acquire it. Overall low interest rate relative to other similar lending products.

Business Credit Card - A great way to start establishing your business credit. I would recommend opening a business account after creating your LLC at a LOCAL portfolio lender bank. These banks are relationship based and much of the underwriting process for issuing personal/business loans is kept in house. Using the big banks such as BofA, Wells, Etc can put you at a slight disadvantage if you don't have a rock solid credit score, and a long history with them, while you're getting started.

"If you find the deal, the money will find you" - So much truth in this saying with just one caveat.... Only if the Money knows about your Deal, and if the Money thinks you have the capability in navigating to a successful outcome of that Deal.

My advice to you would be keep doing what you're doing. Keep analyzing deals, studying the market, going to REIA meetings, getting involved and networking with other investors. I had a bit of an untypical start in my investing career, but I would also recommend bringing a deal to an experienced investor in the area you're looking to learn/invest in to observe the process of what a successful project looks like start to finish. This experience early on will be invaluable.

Good Luck!

Tony