Broke newbie seeking financing advice.

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Broke newbie seeking financing advice.

Kico Mendoza
Member since 2018 · 4 posts · 1 vote

Hi all!

I am looking to jump into the real estate game. My goal is to flip houses in my immediate San Diego neighborhood and hold on to some as rentals. We also have great older 4 unit attached multi-family's in and around my hood as well as cute 4-6 unit small detached cottage style multi-family's. My goal is to build a small portfolio of these to carry me through the rest of my days financially while providing a real connection to my neighborhood which I love very much.

To begin my journey I'd like to flip a house. San Diego is expensive. My family and I were fortunate enough to purchase in the trough of the 2008ish real estate crash so we ended up in a neighborhood we would not be able to afford now. We've brought our late 1920's house back to it's former glory while adding all the modern conveniences. I've always had the desire to do it again. Walking our Golden Retriever around the neighborhood I am very familiar with which houses are great candidates for flips or buy and holds. My problem is I don't have the money to buy and/or repair them.

There were two very recent properties I could kick myself for not making an effort to take advantage of. The first was a fast 3/2 1953 sq ft flip. It sold for $958K back in August. I figured with less than a $100K remodeling budget and about 3 months time it could be resold for $1.25M. It just sold pre-listing for $1.366M. And by the looks of the remodel, which I watched happen over the last few months, they didn't come close to the $100K I estimated. 

A second property not a block from the one above is currently pending at $895K. It's a 3/2 1492 sq ft and doesn't need nearly as much work as the property above. I suspect it will re-list at $1.25M as well. 

My issue is I don't have the financial resources to get into these properties. My wife is financially conservative and wouldn't dip into our retirement savings for a project like this. We have equity in our home but w've already used some for other purposes and don't really want to push that to the limits. 

I'm looking for advice on where to get financing. What type of financing should I seek? Hard money? Private money? Credit Unions? Find a $$$ partner? I'm just spit balling here and hoping the BP community can share some ideas.

Thanks!

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  • Julio Garcia
    Rental Property Investor · Modesto/Stockton/Merced, CA · Member since 2020 · 456 posts · 214 votes
    5y

    Why don't you look into an fha loan to get into a multi unit property. its 3.5% of the cost.

    Something o think about it is, maybe you need to start looking at out of state. 

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  • Joshua D.
    Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
    5y

    @Kico Mendoza

    So your goal is to own multifamily realestate in your area and you wanna achieve this through flipping houses nearby.

    You have equity and retirement money but you don't want to acsess it.

    unless you have different lender requirements than me, You'll need somewhere around 200-300k to get started.

    How are you going to get that money to be able to accomplish your goals?

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    5y

    I am assuming you do not want to house hack.

    Your margins seem a little thin. The repairs, holding costs, and selling costs will add up. There is typically something unexpected that is encountered. The older the house, the more likely there is of unexpected costs.

    Hard Money Loan is expensive, but if you are confident of your numbers and timeline it could provide a return.  The question is if you are confident of your numbers, then you should be willing to use the retirement account and equity in your home.  If you cannot convince the wife that this is a worthy investment, what makes you think you can convince an HM Lender.  HM lenders do not want to foreclose on the loan as that is a lot of effort.

    Private money... Let's say you know someone well enough they float the 20% needed for Non-OO and that the lender is OK with this, what makes you think they should if you are not willing to put your own skin in the game? Most private lenders are not going to be in a position to lend $1M at the max rate permitted by usury law (5% plus the discount rate - I find the law to be ridiculous when rates are this low). They would 1) have to have the resources 2) have to be a good enough friend that they are doing it as a favor as there is no doubt someone with that type of resources can achieve much better return than they can legally obtain doing PML with the CA Usury laws.

    You seem confident, but you cannot convince the wife. Maybe you need to work on persuasion skills.  You need to have the confidence to go all in. 

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