Flipper Seeking Capital

[Peter Schaub]

Hi BP,

I'm a realtor in the Austin area looking to get into flips. I currently work as a wholesaler for Housemax realty. Housemax started as Aslan TX Investments, a large fund that has flipped more than 300 homes in the last 2 years. I'm looking form a partnership with someone who has the equity to either use hard money or cash for deals, but may lack the time or the skill. I can find, manage, and sell a flip from start to finish, but I lack the capital to do it myself. Any suggestions where I could find such an partnership?

[Alex G.]

@Peter Schaub I looked again at your original post. In the beginning you said, "I'm looking to get into flips", which implies you haven't done any. Later in the same paragraph you say, "I can find, manage, and sell a flip from start to finish, but I lack the capital to do it myself".

Here is a thought. It takes at least 3-4 flips to cut your teeth on them. While you complete them you gain a decent understanding of the process, find reliable subs or GCs, work out the kinks in your approach, get a good grip on your numbers, learn to develop a thorough scope of work for your workmen and a good set of contracts for GC or subs, etc., etc. 

Where you are right now  isn't the time to be looking for equity partners who as you put it "lack time or skill".  You will likely lose their money and potentially destroy relationships that could serve you well in the future, after you gain that valuable initial series of experiences. 

There are couple of options to raise capital for deals you do have that may not hurt people who don't know better than to invest with you.

1. Hard Money Lenders. 

There are local HMLs who will loan you 100% of both purchase money, rehab money and even points and fees, AS LONG AS you find a super deal. I.e., your project cost (purchase price + rehab + fees) must be low, low, low -- below 60% of the ARV.

This 60% cost/ARV ratio is enough assurance for some HMLs to give you all the funds you need to do a deal, i.e., purchase money initially and a rehab budget in escrow to be released as you go along with remodeling. Since you're working for a wholesale company, you're in a unique position to be able to find those kind of properties. 

And if you screw up on your first few projects - it's the HML problem, not yours (well, to a degree). These companies and/or individuals are set up to put their money into high risk projects. They do know what they're doing and usually protect themselves agaist the risks of lending money to inexperienced folks like you. If they don't - it's their fault.

If they don't want to loan you the money it usually means your deal isn't safe enough, i.e., the LTV isn't low enough. 60% LTV all-in money is relatively easy. Look up my recent (Feb 2017) Ad in the Marketplace. I got a HML for $180K for a rehab project, and it's not even a 1st but a 2nd mortgage security. My LTV is 60% on the "as is" value and getting lower by the day as I put in more improvements.

2. Earn the equity and do the deal with your own money.

You're only missing $30-40K. You're a wholesaler, so use your skills to get the money you need. In Austin with the prices where they are and the market as active as it is now, you can make $10-20K on a single wholesale deal.  

Heck, I'd pay $10-20K finder fee today for a great deal. I have a few guys who call me with LEADS, not even signed contracts, and they would get paid $10-20K if I close on the purchase. But to earn that kind of fees it'd have to be a truly great deal. Trust me, I know. The company you worked for, or rather their backer Aslan Residential fund, bought a number of "as is" fixer properties from me  a few years ago, when they were actively rehabbing here in Austin. I had to grind it out to find those kind of off-market deals that I could resell at a big profit... But that's what you do as a wholesaler, don't you?


To sum this up: (a) Either find a super-deal that's so darn cheap, it's safe for any HML to fund, or (b) Apply your trade as a wholesaler and earn that down payment you think you need to do a deal, and you won't need equity partners.

Once you do cut your teeth and get your rehab experiences under the belt finding equity partners and even HMLs at lower margins shall be a lot easier.