Private money lending - Due diligence

[Curt Bixel]

I am in the process of refinancing several rental properties and should have several hundred thousand dollars of cash in hand when this process completes.

I have been looking for properties that I can purchase and add to my buy and hold rental portfolio. I am finding almost nothing as the market is quite hot now and few good quality properties can cash flow. On thought is to flip a property, although this seems like a risky time in the market cycle for someone to try a first flip.

I have been approached by a company that seems to have quite a lot of experience flipping properties and my first conversations with them have been very professional and raise no red flags.

That being said, I am also new to this area and have quite a lot to learn before putting these large quantities of money in the hands of another.

I am interested in any and all advice you might have for me at this point because I would rather spend a hundred hours reading and learning instead of learning some hard lessons by experience.

[Perry Farella]

As someone who , as a lender manages flip financing for small investors I would ask you to act just like a bank Underwriter would. Meaning if I were loaning someone 100k to fix/flip I sure would want to be as conservative as any bank might be.
I have seen more flippers get into trouble than I have seen successful ones to be honest.
I often deal with newbies so they tend to make these mistakes:

1- underestimate the time rehab will take, often due to weather delays or delays with local officials securing permits or delays with local building inspectors coming to inspect rough-ins thus delaying installing drywall and finishes

2- Over improving the properties by building them out as if it were to be their personal dream home, which means they go over budget and eat into any profits from selling plus cause more delays with changes

3- Over price the flip so it sits on the market too long and their carrying costs sky rocket which eats into any final profit

4- under estimate monthly carrying costs like water service charges and garbage collection charges- these will still be there even though water may not yet be turned on and the cost of electricity the contractor needs and will use monthly

5- get in trouble with the local building or planning dept. due to over building on a lot or tearing down so much of a house as to then have it viewed as a new build that doesn't meet todays lot line set back requirements and then have a stop work order issued for months while they argue that its not a new build which only increases carrying costs and decreases future flip profit or really causing the profit to become a loss

The ones I see most successful are the first timers who buy a 3 or 4 unit to rehab and reside there for 12 months and do it on an FHA 203k loan to be honest. The majority of investor fix/flippers just don't have the discipline as above to keep out of trouble it seems.
The HGTV shows like Good Bones I watched last night also have their issues and delays but they at least keep to their budget. If only life were like it is on TV...