Do I understand the flipping process correctly?

Question

Hello all!

I've been scouring the forums recently and I would like to get started in investment with a 'fix and flip' strategy. That way I can build equity to do SFR buy and holds later on. The first step I would take is to find a good wholesaler to shoot me some deals within driving distance of my home in Santa Clarita, CA. This will be my first flip, so I'd like to keep purchase price at $150-200k. Once a wholesaler gives me a deal, I drive out to it with a contractor to estimate repairs and work with a real estate agent to determine 90 day comp sales to determine ARV. If I like it, I pull the trigger on the deal with cash and a traditional loan. I would also need to have enough cash to rehab on my own or work with a hard lender. Once rehab is done, go through the agent to sell. Here are my questions:

• Is that roughly the process to flip a home?
• For those of you who flip, do you work with anyone to help with design? Or do you just eyeball it?
• If I have about 100k cash and 800+ credit score, should I go traditional? Or is it better to leverage hard money?
• With the 100k cash that I have, is the 150-200k a safe price range to enter?
• How would I find a market that suits my needs? Where do I start with the research? I keep seeing everyone say "do research" but I don't even know what to start looking for.
• Would my money go further doing fix and flips out of state with a BP partner?

Would appreciate any insight you all have. Thanks so much!

Andrew Michael · Answer

Hi Account Closed

As a basic overview you have this right.  Since this is your first deal, I would highly recommend getting an investor friendly agent to represent you.  That way they can help you evaluate the deal from an investor standpoint but also make sure nothing fishy is going on with the purchase and closing process.

1- Yes, you have the order and basic process correct.  There are several other steps but your basic idea is correct.

2 - I always like to partner on deals to leverage my time, money, and experience.  They also may bring ideas to the table that you overlooked.  To answer your question, your agent may have some suggestions and your GC certainly should give you his opinion but have an idea of what you want to do and bounce it off your team.

3 & 4 - Traditional will certainly fetch better rates than a Hard Money Lender however you will likely have to go through a long and lengthy process.  The chances of a wholesaler waiting for traditional financing is slim.  They are most likely going to want a cash offer which you can give using hard money.  Hard money will cost you a little more but you can be qualified and funded in under a week.  With your credit and cash to put down you should have no problem qualifying.  Since its your first deal look for 3-4 points at 12% range.

5 - Start with the markets you know.  Start with your current market and expand an hour in each direction.  I would not suggest running your first project any further away then an hour.

6 - If you are trying to flip out of state with a partner you are essentially becoming an equity partner/ lender.  I would not suggest this.  You need to get some flipping experience so you know what to expect.  You would have to really trust your partner that the numbers they are providing and the information they are relaying is correct.  If you have no flipping experience how are you going to know?  What basis do you have to compare it with?  Further more the finance part adds an extra layer.  Lending in itself is a business so you are basically trying to start two things at once with no experience.  I would be careful.

Here is my suggestion.  You bring a lot to the table with your credit and money.  Start looking for a property you think works and bring a partner on board for your first deal.  Put up the funds and learn from them.  Make them mentor you through the process and take notes.  This is a safe way to get the experience you need while have the safety net of a professional.  Split profits with them and boom, you made some money while getting educated.  Not a bad deal for your first one.  Most people spend thousands on the education you are going to get paid from.

Account Closed · Answer

@Trevor Dreilich Thanks for the tips! I appreciate that. The 100k I was discussing was not my price range but the cash I had on hand for down payment + rehab costs. Unfortunately, in my market, you can't even get a rundown drug house for 100k. I'm looking for something in the 200k range so that I can make a 40k down payment (out of pocket) and have 60k for closing costs and rehab.

@Andrew Michael Thank you! That's a wonderful idea. Do you suggest I build that team first (hard money and real estate agent) before I go looking for a partner? Or do you suggest I find the deal first then build the team?

@Brandon L. Thanks for the tip! I will steer clear of wholesalers who I haven't met through BP.

@Brent Coombs Will do. I haven't watched any of those shows, but it might be a good practice to see the horror stories.

Jim Keller · Answer

Leigh

Well put, I have been an active investor for years now.

Real Estate agents aren't investors and when a wholesaler offers me a deal at 80% of ARV it's distructive, just say no.

Disciplined investing is your only defence.

Jim keller

Leigh C · Answer

Wholesalers outright lie about ARVs

Realtors will inflate the values to try and get listings...

If you expect to use a wholesaler to source deals (they typically take the fat off most deals) and a realtor to verify the ARVs expect to do a few flips for free or at a loss.

Don't get me wrong, good realtors and wholesalers are out there.....just like unicorns.

Brandon L. · Answer

Flip leads can come from anywhere, there are very few legit "wholesalers" so i would not start there if I did not have an established relationship.

Trevor Dreilich · Answer

Yes that's that's the basics. I would do a conventional because of how low interest rates are right now. there will be some closing cost with that so figure maybe 5 to 6 grand. there are some markets out there that 100k would be enough to pay cash for a property and that's best. very little closing cost and no payments. Maybe a credit card to pay for the materials for the rehab if you spend the whole 100k on the property. I'm in charleston, sc and that price is hard but do able. do your research on a agent, maybe someone on here would be your best choice.

Account Closed · Answer

@Brandon L. Noted! Thank you very much for your insight. :)

Kuba F. · Answer

Account Closed

1. Yes

2. Yes, IMHO a couple hundred spent on design is worth every penny, as long as the designer has your profit goals in mind.

3. No.  In your market you will need all cash so if you don't have it on hand, hard or private money is your other option.  You will find that your conventional financing offers will get you nowhere.  Deals in SoCal happen in a matter of hours, not weeks.  If you're keeping the place, you will refi conventional in 6 months.

4. What's safe depends on your level of risk, knowledge and, and ability to predict the future.  Can you find a 200K deal in Santa Clarita?

5. Markets you know are always a safe bet from a knowledge perspective.  Where you live it's easy to keep track of trends, know which neighborhoods are in trouble because of exploding refineries, how long properties are staying on the market, what is the finish level of competing properties...That doesn't mean you can't keep track of these things remotely, you just have to be interested enough to keep on top of these things.

6. Some things are more difficult to do remotely, but not impossible provided you find enough trustworthy individuals, which can be a pretty big challenge.  Remoteness also makes deal flow harder, and is more expensive as you have to rely on more people, but I like that it forces you to stay out of your business.

Partnering is a good start.  If you haven't already, I suggest you attend some local meetups REIA groups to network with others, and most of all, trust that this is a tough business and people will gladly take your money from you.

Andrew Michael · Answer

Account Closed

I would start the conversations with potential agents now and certainly start shopping for hard money lenders.  Get a idea of each lender and what they require.  Are they asset based or credit based, 6 month terms or 12 month terms, flexible on points and interest due to your fantastic credit score, what LTV/LTC do they lend at, etc.

In terms of your agent, shop around and see who works best for you.

Also never stop looking for deals.  If you find one where the numbers make sense the team will come.

Brandon L. · Answer

Account Closed anyone can sign up for a free acct on BP and call themselves a wholesaler. Steer clear if they do not have a history of success with you, or someone you trust a lot.

Do I understand the flipping process correctly?

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