Ready to buy our first property to flip

[Austin Kaercher]

Hello all, I am 29 years old and I am an owner/operator of my hvac company in Florida. After 13 years being in this trade I am burnt out and ready for a change. We have about 80k in equity in our home. My wife and I are very confident in the work/knowledge needed for flipping our first home and we have lots of connections in the construction industry for the things we are not sure about. What do you all think the best avenue for securing our first flip property is? Hard money lender, Heloc, 203k? We would like to keep our home now and use it as our first rental property, but we are unsure if we should just liquidate it and take the proceeds. Any advice/help is appreciated! 

[Jaron Walling]

@Austin Kaercher What ever you do don't be in a rush to buy property. You have the skills and some money so don't blow it on a bad deal. Know when/where/what is a good DEAL, create a buy [box] and stick to it! That's all you can do given your experience. 

$80k in equity isn't much in the grand scheme of things. I'd get a small HELOC in combination with cash and/or partner with someone else to get a deal done. Don't over leverage your primary residence. You should read about the pros and cons of 203k loans. In my opinion it creates road blocks that slow investors down.

[Austin Kaercher]

Thank you!

[Nicholas L.]

@Austin Kaercher

welcome.  we are here to help.  i do want to just challenge you on a few things.

-do you have liquid capital in addition to your equity?   you need it.  there's no way around it.  flips are actually way more expensive than what most people think.  you may know the following, but i'll just recap for you anyway.  the HGTV formula is: sales price minus rehab minus purchase = profits.  nope, nope nope.  there are costs to close on the buy, costs to hold, costs to finance, and then MAJOR costs to sell, plus... TAXES.  if those aren't factored in you're not actually making money.  check out Tarl Yarber's videos on YouTube.  He goes way into the weeds on costs and he compares flips and BRRRRs in major detail.

-should you liquidate your home? I have no idea. i don't know much about you or whether that would be a good idea or not. or whether it would make a good rental or not. if you want, provide more detail / post the numbers. for it to be a good rental the rent needs to cover more than PITI.

-contacts in construction is fantastic - that could be a big advantage for you.  but... you'd need to figure out specifically how.  a live in flip that leverages your own skills and contacts could be good - it's a lower risk way to get started.

-don't go buy the first thing you see just because you're burnt out.  you'll set yourself back if you do that.

hope this helps

[Katie Smith]

Hi Austin! Congrats on making a leap to REI. When you're feeling burnt out - it's definitely not a bad choice to try something a bit different. I'm in Orlando and would love to connect further about this. Getting a HELOC to fund the down payment of a hard money loan is something to think about. I have title and insurance companies I can recommend to you as well!

[Mike Klarman]

Austen, all I can tell you is that real estate has made more millionaires out of regular people than any other industry.  So I think pivoting can be the right move.

Florida is a very pricey market, I looked at a few markets around T.B.  80k will not stretch a long way in those markets and I near that the permitting process can be a nightmare.  The best money making opportunities in Florida are with the ground up.  I found the spreads on the fix and flip projects were only 50k - 70k because the initial purchase was high.  For example, a distressed house may cost 200k and if fixed sells for 350k, but it needs 100k in work so the spread is 50k and then work in all the holding costs and closing costs and if there is any hiccups you are under water.  But, you can build something for 150k and sell it for 300k brand new all day.  Obviously the closer you get the to coast lines and to resort areas the higher the price points get.

If I had 80k and I was digging into my HELOC to get it, the most capital I'd want to tie up in one deal, the first deal is 30k - 40k max. I feel like a deal in your home market will require you sinking your entire 80k into a deal that may or may not work out. I'd hate to see you get stuck.

[Nelisa Lee]

Quote from @Austin Kaercher:

Hello all, I am 29 years old and I am an owner/operator of my hvac company in Florida. After 13 years being in this trade I am burnt out and ready for a change. We have about 80k in equity in our home. My wife and I are very confident in the work/knowledge needed for flipping our first home and we have lots of connections in the construction industry for the things we are not sure about. What do you all think the best avenue for securing our first flip property is? Hard money lender, Heloc, 203k? We would like to keep our home now and use it as our first rental property, but we are unsure if we should just liquidate it and take the proceeds. Any advice/help is appreciated! 

Hey Austin, what about the HVAC company is burning you out? I only ask because I've seen many investors also get burnt out, switch careers and even liquidate their entire portfolios because of it. While it can be very lucrative, it comes with its own set of unique challenges. 

For your first flip, I would recommend a hard money loan. It helps to have another set of eyes on evaluating the deal since most of the lenders I've worked with won't lend on the project (because they want to protect their own investment) if they don't think it'll be a good deal for the buyer.  

I would try to leverage as much as you can so that if things go wrong, all of your own money isn't stuck in the project until it sells. It will cost more to hold onto doing it that way (so make sure it's a good deal and provides room for error).  I know some investors who don't like any debt on their properties at all. Ultimately, this will come down to your own risk tolerance.