Find property or Find loan? What's first?

Question

I am really confused. I am about to setup an LLC and get ready to start my flipping journey and well I just can't seem to understand something.

I have read and listened to podcast where it mentions to find a property that your interested in first. Then come up with a plan to present to the bank/lender and explain how this deal will make a profit in order to receive the loan.

Then I have read where others say to look for a loan first and then go searching for a property.

Which comes first? the chicken or the egg? ha, but seriously maybe I am over thinking this...But I just don't know where to start. Either to find a bank or HML first, or find a great Deal first then go ask for money after coming up with the estimated total of the price of purchase plus rehab etc..

Help...

Bill Gulley · Answer

Get "pre-qualified" from a lender first, so you have an idea what they will do and under what conditions they will lend you the money. Then find properties.

Get insurance to cover your risks.

If you lose a suit most likely they will go right through your LLC to you personally, at that point all your assets are then at risk, including all the ownership interests of your 3,892 LLCs that you formed thinking they would all be safe. Get insurance!  :)

Anthony Dadlani · Answer

Alexander Bustos I think alot of HML will prefer you to purchase in an LLC.

I think lining up your funding sources first is better. Don't want to lose a deal you spent alot of time locating due to funds not available.

Best of luck in all your endeavors.

Alexander Bustos · Answer

Still searching for financing... everyone I call requires 20-30% down. So I may have to call a HML ... trying to avoid that though... Also I am under the understanding that I am suppose to get a loan that covers the Rehab + Purchase price... Is that right??

Steven Hamilton II · Answer

Get a couple flips under your belt and insure very well. Then once you have some experience and know you want to continue. Then you decide if you need a new entity.

Alexander Bustos · Answer

Thanks for the tip bill, does this mean I probably wouldn't need a Business entity and just get insurance instead? I'm starting out and just want to make sure I cover my bases. I have read so many post saying become an LLC S Corp for flipping but then I hear others say just get title insurance.

Brett Russell · Answer

Alexander Bustos, my understanding from reading is that assets owned by a single entity, like an LLC, could be at risk if that entity is found liable.  So, if you had 10 projects going at once, all owned by one LLC and something happened and a judgement was made against the LLC, potentially you could lose all 10 properties.  But, if each property was in it's own LLC, the other 9 would be safe(r).
Doesn't seem like it would make much difference if you only have one project at a time.
If people are planning for long-term holds, though, it could make a lot more sense to separate things.  However, others argue for simply getting more umbrella insurance.
I'm still trying to figure this part out an looking for a local attorney to talk with about my specific plans which is probably what everyone should do.

Alexander Bustos · Answer

Gary BaileyJimmy WatsonRobert RuizBrett Russell

Thanks guys for all the input, this helps a lot! I am off to find out where my finances are going to be coming from then! Thanks.

One last thing, why is it that I read about people Making MULTIPLE LLC's for there flipping and some who make just 1 LLC for all there flipping..?

Gary Bailey · Answer

I second what Jimmy Watson said.  You must get the funding lined up first.  If you find a deal, then take a few weeks to secure your funding, and then come back and the deal is still available then it's probably not a deal after all.

Banks/loan officers are one way to go but very few of them still offer financing on houses that need any work at all.  That leaves you with the option that most new real estate investors opt for:  Hard Money Lenders.

HMLs are definitely more expensive, but if they are your only option then expensive is better than no funding at all.

Here are some things to consider when seeking out a Hard Money/Private Lender:

1.  Beware of online "affiliate" sites where anyone can sign up to represent themselves as a Hard Money Lender

2.  Avoid companies that charge a membership or application fee to gain access to their "network" of private lenders (note that many credible HMLs will ask you to pay for your appraisal up front, which is acceptable)

3.  Try to work with a lender who is familiar with your market (if they are actually located IN your market that would be even better!)

4.  Ask to speak to other borrowers who have successfully used the lender in the past so that you don't get "left at the alter".  (I believe there is a board on BP called "have you done business with this company" or something like that)

5.  Get a firm commitment on their terms in the form of a Good Faith Estimate, many lenders will try and switch up their requirements during the loan process

Good luck!  Just a note that when you first start looking for HMLs it will seem like they are growing on trees but you will quickly find that most of them are not what they appear to be.  Don't get frustrated, just keep moving forward and eventually you'll find one that works for you.

Gary

Jimmy Watson · Answer

Alexander Bustos, Here's my 2 cents as a newbie with my 1st property about to close.  I found funding first.  In Dallas, as you will find, if you don't have your funding ready to go, by the time you do get it ready, the property will be gone.  That's assuming you are using wholesalers.  I went through three hard money guys to find the one that I'm comfortable with, Clayton at First Funding Investments.  Also, by knowing how much you are approved for, will help you sift through the one's that are obviously not fitting in your criteria window.  For instance, I was approved for a total lone of $150k, $210 arv.  Anything above that, I discarded.  Even if it were just shy of my max, no matter how much I drooled over it, I typically ignore them because it would stretch my cash on hand too much.

Again, my 2 cents in my world of hard money and wholesalers.

Good luck!

Robert Ruiz · Answer

I believe that having a good banking relationship is something that makes the process a whole lot easier. If you don't have any relationships already, I would take some time interviewing loan officers. Remember, don't be intimidated by these guys, just find the one that is excited about working with you. I always have better luck with smaller hometown banks. I ask for interest only financing with 10% down.  When you feel comfortable with a couple of them, go find that deal, put it on paper (nothing too extensive if your flipping)  with your conservative numbers and bring it to them. You want to show them you did your homework. If your having a problem finding an aggressive bank, find a mortgage broker in your area and ask them, who are the hungry growing banks in town. They will know. 
Having said all this, if you do get a deal first, and don't have money lined up, nothing will motivate you to find it like potentially losing your deal because you couldn't find money, lol. Hey if it was easy, everyone would be doing it. I haven't used hard money yet, so I can't really speak to that. 
Good luck

Find property or Find loan? What's first?

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