Proof of Concept Down...Now How Do I Scale Up?

Question

Hi there, my name is Sawyer! I've been involved in the real estate world for over 4 years now and have learned several faucets of the industry. I started out working business development for Marcus & Millichap (helped my sales skills and gen. real estate finance), did acquisitions and project management for a small real estate developer (learned acquisitions, increased my renovation knowledge), was an underwriter for Fund That Flip (developed strong real estate analysis skills), have been an agent for 3 years (gen. real estate sales understanding), and have flipped two properties on my own successfully and have 3 more in renovation currently.

I launched my own company and now work full-time as an investor. My credit is in the mid 700s and I have $50K+ in the bank, my BIG QUESTION here is where do I source additional funds to scale my operation and grow? Does the SBA offer loans to real estate investors like us? Do you know of any banks that help smaller time investors with some experience and cash scale up with funding?

At this point in my career I feel pretty confident in handling several projects at once and coming out profitably, I know I can rinse and repeat and take on a lot more however with the amount of cash I have right now (even if I spread it out with other financing methods) can only do 3-4 a year when I'd like to do 10+.

I am open to any and all suggestions! Thank you.

Sawyer Dina · Answer

@Mike Dymski  - thanks for contributing! And yeah, I agree with you I'm not too far off however this is what I do full-time and in order to properly make sure I am on track to hit the 10+ in a year or two I need to be raising capital. So I didn't know if there were some creative financing or suggestions in order to raise additional funds to put forth towards downpayments to use in combination with HML and PML. That's why I posted, in order to get some of that advice. You are exactly right though, networking and continuing to talk to people is most likely the best way to raise these sorts of funds. I'll continue to do that, thanks!

Filipe Pereira · Answer

Is there anything wrong with doing it the old fashion way @Sawyer Dina? Work hard, save money, buy property, rinse and repeat. I know it's not a shiny solution to a dull problem, but it seems like it has worked well for many in the past.

How much more do you need to fund your next deal?

Josh C. · Answer

@Sawyer Dina

Unfortunately no.  I as mentioned before no bank with give you money unsecured. By that I mean not guaranteed by assets you already have. Like another house with no mortgage or low LTV. Or a established business with years of cash making history. I have a line of credit that I can use for whatever I need for my business weather that’s new purchase to roof or parking lot. But that amount is only up to 80% of the value of my existing property. For example a house worth 200k with a mortgage of 100k can allow me to borrow and extra 60k. So I can just take out 60k whenever I need it. But if I sold that house or didn’t own it they wouldn’t just give me 60k because of how smart or experienced I was. They only loan on hard assets.

What you are asking for is a loan for downpayment or purchase tied to nothing but your smart butt. Also called 100% financing.

Not going to happen via bank period. Hard money, family, friends are only option.

Sawyer Dina · Answer

Hey @Filipe Pereira, thanks for commenting! Haha, no....there is absolutely nothing wrong with working hard, saving money, and buying properties. That essentially is what I'm doing and what I have been doing, however as we've learned so much through BP it doesn't hurt to reach out and raise private capital or use creative financing to scale up quicker. I'm not a newbie begging for 100% financing on my first deal here. I have cash, good credit, a scalable business with a track record, connections to HML & PML, and of course a hard work ethic. However, I do this full time and I'm not made of money, it makes sense at this point to raise capital.

To answer your direct question, I'll need $100-110K for my next deal. But again, I'm not completely after raising the funds for just one deal. I'm interesting in meeting/talking with people who invest in business like mine for a living and would like to deep dive into my processes/experience/numbers and would consider helping me scale beyond that. Of course, it also makes sense for someone like that to try just one deal with me first, but again open to any and all suggestions so I appreciate the comments/thoughts thus far.

Sawyer Dina · Answer

Hey @Anthony Dadlani, appreciate you being part of the convo here! Yeah you're correct, using HML, PML, and capital partners are a must in this industry, most of which I already use. I am always open and looking to connect with more, so open to suggestions!

And sure, I'd be happy to talk further with you. I'll shoot you a PM and see when you'd be available next to chat. Thanks!

Sawyer Dina · Answer

@Josh C., thanks for chiming in man! Yeah, I'm not at all interested in working with banks on my deals, as you said, very tough to finance flips that way. I was more wondering if you know of any smaller or regional banks that work on lending to small real estate business in general for scaling up and growth purposes. That way I can put that money to good use, aka downpayments and such to exponentially increase the amount of deals I am able to do. Let me know!

Anthony Dadlani · Answer

@Sawyer Dina

I think the only way to scale up is to use hard money or bring in a capital partner. Both have pros and cons.

Would love to have a conversation with you about your experiences and business. Please feel free to reach out to me and schedule a call. Best of luck in all your endeavors.

Josh C. · Answer

Banks will want 20-30% down. And flips are very tough but possible to find a bank to lend on those. To get that 20%-30 you need family friends or hard money. Just is what it is. No bank will give you a big unsecured line of credit or accept 5% down unfortunately

Good luck and that is great work experience you have.

Mike Dymski · Answer

If you are able to do 3-4 flips in year 1, that should scale up to about twice that number in year 2; so, you are not far from 10+. If you want to scale faster, have to network for capital (local REIs, BP posting, blogs, conferences, friends and family).

Sawyer Dina · Answer

That's awesome @Collin Placke, definitely wish I had the access to private capital that you do. How'd did you find the amount of private capital to fund a 100+ unit? Any pointers on where/how to find legitimate private money guys?

Proof of Concept Down...Now How Do I Scale Up?

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