Flipping woes of a Real Estate Rookie... send help! SOS!

[Hannah Simpson]

Hi, I am new to REI and BP, so please bear with me as I try and learn! I've been reading all the books and listening to all the podcasts, but something is just not lining up for me, and I don't quite understand what I am missing.

I am trying to flip a house. However, the bank is requesting total loan amount (purchase price of home + rehab cost). As we all know, good deals in real estate move fast. So, how can one manage to get several GC's out to the house you are looking to flip, and get the rehab cost quickly, in order to get that info to the bank- all the while then having to wait to get approved. 

I don't understand how the house would not be taken by the time all that happens. Especially if it is a good deal and will move fast. And then what happens if it does sell to someone else in the meantime...? Then you have to start over with new purchase price because the home you were looking at is now off the market. What am I missing? 

Also, one thing to note that might be part of my trouble is that I am investing out of state in a small town in Oklahoma where there appears to be NO GC's. It's wild. It seems like I will have to go to a bigger city (about an hour away) to even find a GC. This further complicates my situation and I just don't understand how all the pieces fall together. If I can't even get the loan without rehab estimate, but can't get any GC's out to the home then.....?

Thanks for any help/feedback!

[Justin Hammerle]

@Hannah Simpson - Are speaking of a pre-approval?  Pre-approvals shouldn't be property specific and are given as a blanket amount. Offer submission and acceptance should be based on pre-approval.  Once you have the option, you can go ahead with your DD without risk of losing the property to another buyer.

[Hannah Simpson]

Hi @Justin Hammerle! Thanks for your feedback! Honestly, I am not sure. When I spoke to the loan officer at the bank she simply told me that..."we will need to know the total amount you are looking to loan on the property (purchase price plus rehab costs). Once approved, we will need your bids from your contractors on the rehab so that we can submit them to the appraiser for an as to be completed value."

Hence my concern/confusion- it seems like I have to know all that upfront while not even having secured the home...?

[Riley Kuranishi]

It sounds like you're looking at more of a rehab loan over something like a conventional or FHA loan. In which case they would likely need more precise numbers to help calculate what those numbers would look like.

In this market rehab loans can sometimes take up to 90 days, which in a competitive market likely won't fly. You'd either be looking at a conventional (low down if you can afford it) or doing hard money and refinancing after the fact. Most times you won't be able to get multiple GCs out there in time and most don't want to waste their time on something that isn't even in your name. If you're already having a hard time finding contractors then I'd suggest looking in an area that has a wider availability of contractors and see if you can learn from the ones you are able to get out there. 

[Hannah Simpson]

Hi @Riley Kuranishi Thank you for your feedback! Correct, it will be a rehab loan. So, in your experience, needing all this detailed information up front is typical for a rehab loan? That seems wildly difficult and inconvenient. And agreed- it seems a waste of anyones time to estimate rehab costs to a home I don't even own yet...

[Riley Kuranishi]

Yes, that's generally why they take so long to close. Any form of rehab loan there's more due diligence involved and more processes to go through to make sure that the loan you're getting is sufficient for the type of rehab you're going for. 

In our market, it's harder to find those properties unless you find something off-market or something that's been sitting awhile that they're willing to wait that long. But I also would make sure wherever you invest you find somewhere that has an adequate supply of contractors. You might get a good deal on something, but if you can't find good workers, it won't turn out to be a very good flip unless you yourself have a construction/flipping background.

[Ethan Gidcumb]

Hey Hannah! As a hard money lender, this is how we could handle situations:

Provide a borrower with a pre-approval, just as Justin had mentioned. When you find a property that you are in contract on, or want to check how much the total loan will come out to; we will ask for the Purchase Price, Rehab amount (This can be a rough estimate but will eventually have to be consulted by a GC), After Repair Value, and Exit Strategy. 

After gathering some preliminary information about the property and yourself (such as FICO and experience), we are able to provide a quote! Assuming that the deal looks good and the quote checks all of your boxes, we will order an appraisal, collect documents, and start getting all other processes in order to close. 

As Riley had mentioned, getting a loan conventionally can take quite a while, which is why some investors prefer (or require) a hard money lender to help on the financing side. Hopefully, some insight on the process helps your understanding. It seems the area in which hard money could help you is in the qualification process since there are fewer, "checks", to get the ball rolling.

Some investors I talk to already have a favorite GC they decide to work with, so maybe, it would benefit you to find a GC that you'd like to work with so you can move faster in the earlier stages if you find yourself in a similar scenario.

[Stephanie Moreno]

have you though about using a Hard Money loan instead? they are quick on situations like this, its really convenient for investors specially for flips, BRRRR transactions and more!

Ive done about 100 transactions in the last 2 years and all of them were investment deals, id be happy to chat with you and share what I know :) 

[Bill J Fay]

Don't rush into a purchase just because you think it could be a good deal. Go walk the property with your contractors and get a breakdown that itemizes the work that they are quoting. If you can't find a GC that you feel confident in running your project, you may be a tad early in the process. I would also suggest doing your 1st flip driving distance to where you live. This way you can check on the project multiple times a week. Once you get your estimate from your contractor, then talk to your lender. There are many hard money lenders that BP recommends under "Build your team". From here, your lender will know what your budget will be and will be able to get you a loan based off of accurate information. Don't rush into a purchase without completing the necessary steps, especially for your first few. Good luck!

[Rhett Tullis]

Just be aware you will not find any GC's in Oklahoma.  They do not license them here.  Lots of folks do the role but it is not regulated by the state in any way.

[Jonathan R McLaughlin]

@Hannah Simpson hi Hannah-definitely part of the learning process, good for you. 
how do you know you can successfully flip the place if you don’t know what the bank is asking?

All they want to know is what you are planning to do, how much you think it costs and how much you think it will be worth when done. 

Kindly meant, but if you can’t put this together to some degree of accuracy you should t be flipping

[Konstantin Ginzburg]

@Hannah Simpson

I think you may be doing things a little out of order. If you plan on investing long distance; things will likely go much smoother for you if you establish your network in the area before actually putting in offers on houses. This includes creating a network of GCs or a boots on the ground that are able to see the property quickly and give an estimate on what the repairs will be. Once you have a rough estimate, you can access whether or not the property is still a viable investment and put in an offer accordingly. If your offer is accepted, then the seller will be locked in and you will have a period of time (usually 3-6 weeks depending on what you and the seller agree to) where you can order inspections, GC's, and any other in-depth research on the property you feel are needed. During this time, the seller can not negotiate with any other buyer so you two are locked in. This is the best period of time to get a GC to give you a full scope of work and bid that you can present to your lender. If you begin searching for GC's after the offer is accepted, you are essentially racing against the clock to get everything accepted and completed in time. You don't necessarily need an exact figure for your repairs prior to making an offer but you should have a decent estimate that you can confirm during the holding period. Having your team set and ready to deploy as soon as an offer is accepted will make this a much smoother process for you. You should remember this from the GCs perspective as well. If you have a GC that you have a previous relationship with and you have provided work for, they would be more willing to provide a quick estimate because they know a relationship with you is mutually beneficial. If you put in an offer and start calling random GCs afterwards who have never dealt with you before, there is no incentive for them to take you seriously as a potential lead and are more likely to decline if they do not have the time available in their schedules. Every town does have GCs, there are more in larger cities compared with small towns but there are plenty in small towns as well. The GCs in small towns may no advertise or may be smaller in scale and harder to find if you are in the area. This is another benefit to a boots on the ground team that is more tuned into the local market and is aware of who the quality property managers and GCs are in that area. 

[Timothy Howdeshell]

Hi @Hannah Simpson. Great question! This is some of the technicals that are not always discussed on the motivational podcasts. The answer to your question as a first time investor would be to try and find an "investment savy/friendly" realtor. They will be able to benchmark rehab costs for you, take a look at the property, do some basic, rough, back-of-the-knapkin underwriting (this house will need $40k, is selling for $200k and will be worth $300 afterwards). 

An investment friendly agent will also understand this process and be able to help you navigate this as a first timer. 

Here's how the pro's do it. Find a lead (on or off market), get photos and/or videos of the property, if they are local they or someone they know will walk the property to get a rehab estimate, if not they use those photos to estimate rehab costs using their knowledge of local rehab costs (varies greatly depending on skill, experience, and relationships; find another local investor to provide a rehab cost sheet), put the property under contract at their desired price with an inspection period (pros can waive this as they are providing their own rehab bid on the walkthrough, not waiting on a 3rd party), get the GC(s) out to the property during the inspection period to verify assumptions, and then re-negotiate or close. 

Hope that helps and good luck! 

[Hannah Simpson]

Quote from @Riley Kuranishi:

Yes, that's generally why they take so long to close. Any form of rehab loan there's more due diligence involved and more processes to go through to make sure that the loan you're getting is sufficient for the type of rehab you're going for. 

In our market, it's harder to find those properties unless you find something off-market or something that's been sitting awhile that they're willing to wait that long. But I also would make sure wherever you invest you find somewhere that has an adequate supply of contractors. You might get a good deal on something, but if you can't find good workers, it won't turn out to be a very good flip unless you yourself have a construction/flipping background.

 Wow, thank you @Riley Kuranishi! That is all very helpful and insightful! 

[Hannah Simpson]

Quote from @Ethan Gidcumb:

Hey Hannah! As a hard money lender, this is how we could handle situations:

Provide a borrower with a pre-approval, just as Justin had mentioned. When you find a property that you are in contract on, or want to check how much the total loan will come out to; we will ask for the Purchase Price, Rehab amount (This can be a rough estimate but will eventually have to be consulted by a GC), After Repair Value, and Exit Strategy. 

After gathering some preliminary information about the property and yourself (such as FICO and experience), we are able to provide a quote! Assuming that the deal looks good and the quote checks all of your boxes, we will order an appraisal, collect documents, and start getting all other processes in order to close. 

As Riley had mentioned, getting a loan conventionally can take quite a while, which is why some investors prefer (or require) a hard money lender to help on the financing side. Hopefully, some insight on the process helps your understanding. It seems the area in which hard money could help you is in the qualification process since there are fewer, "checks", to get the ball rolling.

Some investors I talk to already have a favorite GC they decide to work with, so maybe, it would benefit you to find a GC that you'd like to work with so you can move faster in the earlier stages if you find yourself in a similar scenario.

 Hi @Ethan Gidcumb! Thank you! Just to make sure I am understanding. The pre-approval then would be from a bank and thus I would have 2 loans; one with the bank and one with the hard money lender?

[Hannah Simpson]

Quote from @Stephanie Moreno:

have you though about using a Hard Money loan instead? they are quick on situations like this, its really convenient for investors specially for flips, BRRRR transactions and more!

Ive done about 100 transactions in the last 2 years and all of them were investment deals, id be happy to chat with you and share what I know :) 

 Hi @Stephanie Moreno! I had actually thought about a hard money lender, however when I reached out to two hard money lender, both were asking for the same information as the bank, and one of them was actually asking for more information. I was really surprised by this since I've heard/read how much faster/easier they are to work with. 

Thanks for your offer to chat! I may DM you!

[Hannah Simpson]

Quote from @Bill J Fay:

Don't rush into a purchase just because you think it could be a good deal. Go walk the property with your contractors and get a breakdown that itemizes the work that they are quoting. If you can't find a GC that you feel confident in running your project, you may be a tad early in the process. I would also suggest doing your 1st flip driving distance to where you live. This way you can check on the project multiple times a week. Once you get your estimate from your contractor, then talk to your lender. There are many hard money lenders that BP recommends under "Build your team". From here, your lender will know what your budget will be and will be able to get you a loan based off of accurate information. Don't rush into a purchase without completing the necessary steps, especially for your first few. Good luck!

 Thank you! @Bill J Fay

[Hannah Simpson]

Quote from @Rhett Tullis:

Just be aware you will not find any GC's in Oklahoma.  They do not license them here.  Lots of folks do the role but it is not regulated by the state in any way.

 Hi @Rhett Tullis! I have recently come to realize this! I think this is part of my problem of not understanding why I could not find anyone to work with. Is there a different "name" that they would go by? When I call and speak to realtors, lenders, banks in the area and ask for GC's they act like they don't know what I am talking about. Maybe it's a matter of different lingo...?

[Hannah Simpson]

Quote from @Konstantin Ginzburg:

@Hannah Simpson

I think you may be doing things a little out of order. If you plan on investing long distance; things will likely go much smoother for you if you establish your network in the area before actually putting in offers on houses. This includes creating a network of GCs or a boots on the ground that are able to see the property quickly and give an estimate on what the repairs will be. Once you have a rough estimate, you can access whether or not the property is still a viable investment and put in an offer accordingly. If your offer is accepted, then the seller will be locked in and you will have a period of time (usually 3-6 weeks depending on what you and the seller agree to) where you can order inspections, GC's, and any other in-depth research on the property you feel are needed. During this time, the seller can not negotiate with any other buyer so you two are locked in. This is the best period of time to get a GC to give you a full scope of work and bid that you can present to your lender. If you begin searching for GC's after the offer is accepted, you are essentially racing against the clock to get everything accepted and completed in time. You don't necessarily need an exact figure for your repairs prior to making an offer but you should have a decent estimate that you can confirm during the holding period. Having your team set and ready to deploy as soon as an offer is accepted will make this a much smoother process for you. You should remember this from the GCs perspective as well. If you have a GC that you have a previous relationship with and you have provided work for, they would be more willing to provide a quick estimate because they know a relationship with you is mutually beneficial. If you put in an offer and start calling random GCs afterwards who have never dealt with you before, there is no incentive for them to take you seriously as a potential lead and are more likely to decline if they do not have the time available in their schedules. Every town does have GCs, there are more in larger cities compared with small towns but there are plenty in small towns as well. The GCs in small towns may no advertise or may be smaller in scale and harder to find if you are in the area. This is another benefit to a boots on the ground team that is more tuned into the local market and is aware of who the quality property managers and GCs are in that area. 

 Hi @Konstantin Ginzburg thank you! Your feedback and explanation of the process makes a lot more sense and definitely clears things up. It's been so challenging to find a GC in my market, which has sort of messed up my "order" of doing things and I think caused a lot of extra headache. 

[Hannah Simpson]

Quote from @Timothy Howdeshell:

Hi @Hannah Simpson. Great question! This is some of the technicals that are not always discussed on the motivational podcasts. The answer to your question as a first time investor would be to try and find an "investment savy/friendly" realtor. They will be able to benchmark rehab costs for you, take a look at the property, do some basic, rough, back-of-the-knapkin underwriting (this house will need $40k, is selling for $200k and will be worth $300 afterwards). 

An investment friendly agent will also understand this process and be able to help you navigate this as a first timer. 

Here's how the pro's do it. Find a lead (on or off market), get photos and/or videos of the property, if they are local they or someone they know will walk the property to get a rehab estimate, if not they use those photos to estimate rehab costs using their knowledge of local rehab costs (varies greatly depending on skill, experience, and relationships; find another local investor to provide a rehab cost sheet), put the property under contract at their desired price with an inspection period (pros can waive this as they are providing their own rehab bid on the walkthrough, not waiting on a 3rd party), get the GC(s) out to the property during the inspection period to verify assumptions, and then re-negotiate or close. 

Hope that helps and good luck! 

 Hi @Timothy Howdeshell Thank you! This is very helpful and gives a really good overview of the process in simple terms. I think the key point is having a realtor who can give me that basic underwriting as you explained. 

[Ethan Gidcumb]

Quote from @Hannah Simpson:

Quote from @Ethan Gidcumb:

Hey Hannah! As a hard money lender, this is how we could handle situations:

Provide a borrower with a pre-approval, just as Justin had mentioned. When you find a property that you are in contract on, or want to check how much the total loan will come out to; we will ask for the Purchase Price, Rehab amount (This can be a rough estimate but will eventually have to be consulted by a GC), After Repair Value, and Exit Strategy. 

After gathering some preliminary information about the property and yourself (such as FICO and experience), we are able to provide a quote! Assuming that the deal looks good and the quote checks all of your boxes, we will order an appraisal, collect documents, and start getting all other processes in order to close. 

As Riley had mentioned, getting a loan conventionally can take quite a while, which is why some investors prefer (or require) a hard money lender to help on the financing side. Hopefully, some insight on the process helps your understanding. It seems the area in which hard money could help you is in the qualification process since there are fewer, "checks", to get the ball rolling.

Some investors I talk to already have a favorite GC they decide to work with, so maybe, it would benefit you to find a GC that you'd like to work with so you can move faster in the earlier stages if you find yourself in a similar scenario.

 Hi @Ethan Gidcumb! Thank you! Just to make sure I am understanding. The pre-approval then would be from a bank and thus I would have 2 loans; one with the bank and one with the hard money lender?

 Hey @Hannah Simpson, you actually have the option to get a pre-approval from both! Whether it's with a hard money lender, or with a bank. That being said, you have two different options when choosing a lender at this point.

On one hand, you have a bank that will provide a cheaper loan; although, the bank has more requirements and takes longer to lend on a property.

While on the other hand, you could go with a hard money lender who will be more expensive; but, you can get into a property faster and with fewer requirements. 

If you go the hard money route and plan to hold the property for a long time, you should refinance the property, once it is stabilized, into a better rate to put more cash back in your pocket. Hard money lenders such as myself have options for this; but, depending on your situation, you can usually get better rates with a bank. 

Let me know if I am unclear on anything I mentioned or can help further!

[Rhett Tullis]

Quote from @Hannah Simpson:

Quote from @Rhett Tullis:

Just be aware you will not find any GC's in Oklahoma.  They do not license them here.  Lots of folks do the role but it is not regulated by the state in any way.

 Hi @Rhett Tullis! I have recently come to realize this! I think this is part of my problem of not understanding why I could not find anyone to work with. Is there a different "name" that they would go by? When I call and speak to realtors, lenders, banks in the area and ask for GC's they act like they don't know what I am talking about. Maybe it's a matter of different lingo...?

 Not really another name for it,  generally just look for a contractor or vendor that does a bit of everything.  In the PM industry we refer to it as a "Make Ready" but lots of contractors out there that can help you but hard to find a good one for sure.  Relationship and trust is key!

[Hannah Simpson]

Quote from @Ethan Gidcumb:

Quote from @Hannah Simpson:

Quote from @Ethan Gidcumb:

Hey Hannah! As a hard money lender, this is how we could handle situations:

Provide a borrower with a pre-approval, just as Justin had mentioned. When you find a property that you are in contract on, or want to check how much the total loan will come out to; we will ask for the Purchase Price, Rehab amount (This can be a rough estimate but will eventually have to be consulted by a GC), After Repair Value, and Exit Strategy. 

After gathering some preliminary information about the property and yourself (such as FICO and experience), we are able to provide a quote! Assuming that the deal looks good and the quote checks all of your boxes, we will order an appraisal, collect documents, and start getting all other processes in order to close. 

As Riley had mentioned, getting a loan conventionally can take quite a while, which is why some investors prefer (or require) a hard money lender to help on the financing side. Hopefully, some insight on the process helps your understanding. It seems the area in which hard money could help you is in the qualification process since there are fewer, "checks", to get the ball rolling.

Some investors I talk to already have a favorite GC they decide to work with, so maybe, it would benefit you to find a GC that you'd like to work with so you can move faster in the earlier stages if you find yourself in a similar scenario.

 Hi @Ethan Gidcumb! Thank you! Just to make sure I am understanding. The pre-approval then would be from a bank and thus I would have 2 loans; one with the bank and one with the hard money lender?

 Hey @Hannah Simpson, you actually have the option to get a pre-approval from both! Whether it's with a hard money lender, or with a bank. That being said, you have two different options when choosing a lender at this point.

On one hand, you have a bank that will provide a cheaper loan; although, the bank has more requirements and takes longer to lend on a property.

While on the other hand, you could go with a hard money lender who will be more expensive; but, you can get into a property faster and with fewer requirements. 

If you go the hard money route and plan to hold the property for a long time, you should refinance the property, once it is stabilized, into a better rate to put more cash back in your pocket. Hard money lenders such as myself have options for this; but, depending on your situation, you can usually get better rates with a bank. 

Let me know if I am unclear on anything I mentioned or can help further!

 Thank you so much @Ethan Gidcumb!

[Hannah Simpson]

Quote from @Rhett Tullis:

Quote from @Hannah Simpson:

Quote from @Rhett Tullis:

Just be aware you will not find any GC's in Oklahoma.  They do not license them here.  Lots of folks do the role but it is not regulated by the state in any way.

 Hi @Rhett Tullis! I have recently come to realize this! I think this is part of my problem of not understanding why I could not find anyone to work with. Is there a different "name" that they would go by? When I call and speak to realtors, lenders, banks in the area and ask for GC's they act like they don't know what I am talking about. Maybe it's a matter of different lingo...?

 Not really another name for it,  generally just look for a contractor or vendor that does a bit of everything.  In the PM industry we refer to it as a "Make Ready" but lots of contractors out there that can help you but hard to find a good one for sure.  Relationship and trust is key!

 Thank you @Rhett Tullis!

[Hamp Lee III]

I also recommend starting as close to home as possible. It may help to have “eyes on” first and mitigate some risks.

I wish you all the best.

[Hannah Simpson]

Quote from @Hamp Lee III:

I also recommend starting as close to home as possible. It may help to have “eyes on” first and mitigate some risks.

I wish you all the best.

 Thank you @Hamp Lee III