First Investment Property

[Ryan Parr]

Has anyone taken out a HELOC on their primary residence to cover closing costs and repair costs for a property they are looking to flip? I am new to this and read many of the posts but have not seen this one. I have the cash to put 20% down, but my thought process was perhaps if I could swing it this way it could be beneficial to not tie this money up? I have a full time job and want to get into this on the side, with hopes of growing it into full time with buy and holds to rent. It has been suggested to me to work on increasing the cash you have on hand first to be more competitive in the market. Thanks for any help!

[Josh Caldwell]

That is one way to put the deal together and a HELOC will work. The only caution that I offer you is to be sure of your math on the flip befor you put your home equity at risk.

Flipping looks super easy on TV, and that is because the TV shows dont care if you make a profit on the show.   I have been interveiwed by DIY twice and a British network once, to do a show like that. 

In my opinon flipping is the hardest way to make money.  There are extra risks involved in flipping.  A market crash like we had in 2008 will destroy flippers.  Dont get me wrong, I have 4 flips going at the moment, I am not saying dont flip, I am telling you to be careful, and evaluate the risks.

The biggest area that I see new flippers having is that they dont have a big enough spread in the deal.  I wont touch a property unless there is a 50k or more spread in the deal.   There will always be an "oh ****" factor somewhere along the way, and some of those unexpected problems can be expensive.   Too often, new flippers start off trying to make $20,000 on a property and that just isnt enough to ensure a safe deal.

Now to change direction for a second.   Private money is a glorious thing.  the art of rasing private money centers around your ability to run your mouth.   Raising private money for flips is hard at first, and once you build a track record, then the money just flows towards you.  When you are new, you need to tell everyone that you know about what you are doing, and how you can make money for them.  I break it down to simple math for my people. "

 I will buy house X for $100k, I have estimates for rehab at 50k and the house comps out at 245k.  I am looking for investors who wnat to make a high rate of return, do you want to know more?"

If they say yes, then I meet with them and honestly explain all of the risks, I lead off with the risks, and then follow with the profit potential.

I hope that helps

Josh

PS feel free to connect on BP