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Updated over 8 years ago, 06/09/2016
Diary of a newbie getting started in the Flip game- Fresno, Ca
I wanted to start this topic just in case there are any other newbies going through the same start as I am. That's just educating yourself for your first flip and trying to figure out how to the finance the first deal without huge cash reserve. Getting started is rather a tough deal. First convincing my wife to buy into the process and start learning along with me was a process in its own. The bigger pockets website has been very valuable to me. I first started and got introduced to the site through the webinar "How to Invest in Real Estate While Working a Full-Time Job." This caught my interest because my wife and I both have full time jobs. In the past we bought and held properties and have two rentals and a primary resident as of now. We wan't to get into flipping houses because of the potential profit you can make. We then want to re-invest and buy & hold a few. My dad is a real estate agent and is successful at it so i have a knowledge source there as well. I also know a few flippers and investors in the area that have helped me along the way. The podcast also has been a great source of knowledge and i listen to them when ever I can. I've learned a lot from the bigger pockets website and from its members.
Right now I'm trying to figure out how to fund my first project. I've saved up money to put a down payment on another rental but have decided to try and flip with that money. So wanting to know if its even possible I began my research on flipping. I first decided to meet with some lenders. Wells Fargo was our first meeting and we sat down with a nice guy that was very helpful on breaking down how mortgages work on investment properties. Because of my knowledge I acquired through my education phase i was able to talk the same language and ask the right questions in this meeting. We talked about 203k loans, Conventional, and a renovation loan. I was surprised that the bank offered the renovation loan. This loan would finance the purchase of the house and the renovation money needed to put the house back on the market. This is not a 203k loan because FHA requirements are not attached. The way the loan officer explained it, the information was very limited and said that there was a separate department for these type of loans. He said from his understanding you need to have a walk thru with 2-3 contractors done and pick the estimated rehab cost of your choice. Then the loan is done on a 110% of the ARV so the way he explained it is if you buy a house at $80,000 the rehab cost $20,000 you are paying on a the loan at 110% of $100,000 so the loan will be at $110,000 and your down payment is based off of that number. You only need to put 10% down for this kind of loan. The interest would be at 5%. We are setting up a meeting with the loan officer at Wells Fargo who specializes in this particular loan to get more information.
A couple days later we meet with a conventional loan officer for a smaller firm and found out how much they would qualify us for. They can't loan the renovation money but qualified us for a good amount. They told us we had to have a 6 month reserve on our rentals and our new investment property (Wells Fargo said the same thing). But they tried to tell us we had to hold on to the new property for 6 months. This raised a red flag because Wells Fargo did not say that at all. They only said if we sold to an FHA buyer we had to hold on to the property for 90 days if it were a conventional loan buyer we could sell when ever we wanted to. So i explained that to the lady and she stepped out of the office to talk with a supervisor. When she came back in, she told us that we were correct. The lender takes a hit i guess if the loan is sold off before 6 months. Again my education process allowed me to ask the right questions
That same night we attended a Guru seminar for Tarek and Christina on flip or flop. I was disappointed that they were not there but i guess that's the norm for these deals. They tried to sell us on their model and pay for a three day education course. The only thing that real grabbed my interest was the access to the lenders an how that worked. But at the break when you start asking questions about the lending process and how it works they let you know it will all be explained at the three day seminar. That was it for me we left at the intermission I could see how this thing was going to go. From my education process I read other members post on this exact guru deal and new what to expect.
So far this has been my experience in this process of trying to start my first flip. I am currently gathering the knowledge of acquiring private money. I'm Listing to podcast and webinars on that very subject. I'm also going to sit down with a hard money lender to see what that would look like. I will try and post anything new here that i come across. I look forward to comments and advice from you guys. There isn't much i can offer to the site besides my current experience and the process I'm going through.
Welcome to Bigger Pockets community. You will find all kinds of useful information under “Learn.”
@Yosef Fares, Welcome to BiggerPockets. You are starting off with way more information than most people who decide to jump into the pool, and kudos to you for sharing your financing experience. I didn't know about the rehab loan - I'm going to check that out.
Here is a post on the BP Blog about other financing options. It sounds like you know about them already - have you asked friends or family for a loan? Sometimes it can be easier to get people who know you to lend you money.
Do you have a contractor to perform the work? I may have missed it, but it doesn't look like you have a property in mind. Are you still looking for a property or do you already have one?
Hey @Yosef Fares.....I am also in the Fresno/Clovis area and just recently completed rehab on my first flip. We're in escrow now and should be closing in couple weeks. As a new investor I've found that indentifing good deals has been the most challenging part of the flipping process. I'm currently doing direct mail, bandit signs, and driving for $$$, I've negotiated deals with a number of different sellers but haven't found anything worth pulling the trigger on yet.
Best of luck to you and your wife, if I can help in anyway please feel free to reach out to me.
I have not asked a friend or family member for the loan yet but i have hinted at a few im just building up my education so when i do pitch the idea i have my ducks in a row. As far as finding a property I use the MLS to look for properties, i run the comps, and use the Flip calculator to see if I get the numbers right and if its worth it if i was ready to buy. All dry runs right now until my financing options are in order. As far as a contractor i have a few in mind. My dad has some connections with GCs as well as some of my other friends who are in the flipping business as well. Any suggestions you can think of? Im going to read that article you wrote on my lunch break. Thanks for sharing
Congrats i can't wait to get my first deal under my belt. I would love to network with you and pick your brain. If you want to grab a drink ill pick up the tab. Would love to get your take on things.
@Yosef Fares, I would love to be able to recommend a GC, but I am not in your area, and I have a terrible track record for choosing the guy who can blow the most smoke. I do everything myself now. It takes less time to learn how to do something than to find someone who already knows how to do it. And can do it well.
@Mindy Jensen, speaking of Do it Yourself, I just found out that Home Depot offers free workshops on things like tiling, installing faucets, etc etc.
Good luck on your future flip. I look forward to seeing your progress, especially on the financing side.
Again, good luck
Hi @Chris L.. Yes, both HD and Lowe's will show you how to do something and give you hands-on experience using their tools and products! Win-win.
Things like tiling and painting. All great things to know!
Thanks getting excited because there are options out there for financing. Spoke with the same guy who gave me a great loan on my primary and he informed me that they also offer a conventional loan with the renovation money as well. Only difference is that I have to put 20% down on the purchase price and the renovation money is put into an escrow account. He also asked that i hold on to the property for 120 days so he doesn't take a hit on the 1.5% form the primary lender. I'm waiting to meet with the guy from Wells Fargo and get the exact details regarding their renovation loan. They initially told me 10% down if that's the case Wells Fargo is first on my list. Bank of America also offers the same kind of loan so I'm waiting to set a meeting up with that loan officer as well.
I never knew those places offered those classes I will have to check that out for sure. I would love to be able to knock out as much as I can on my own.
Ok so i finally meet with Wells Fargo and it is 20% down on the ARV at 5.5% it is the same with Fannie Mae and their Home Bridge program. Going this route it will take about 45 day to close. You can push it faster but you have to have all your paper work ready to go. Interesting story while me and my wife were in Carmel for vacation we took an Uber and got to talking with the driver about real estate investing and found out he was an agent in that area. We got to talking about private money and he told me he had a Private money investor looking to expand out of the area. So we exchanged phone numbers and emails and just the other day his private money lender gave me a call. Told me she would love to work with me but the catch is the interest rate that can go anywhere from 8%-12% and still would require money down in some instances. It was not her money she was dealing with but investors that were with her. She was a loan officer that had access to private funds.
I have found a few properties that i feel have some potential and today I am going to go walk two of them with a GC to get a quote and see if its worth a purchase. I'm also going to go look at a 4 plex as a possible buy and hold with renters already in the units and $80,000 renovation already done to the complex.
I just finished reading the book Poor Dad, Rich Dad and thought it was great. I started reading yesterday the Millionaire Real Estate Investor and will finish it by the weekend. I'm going to make a purchase i feel here with in the next month. Also I've signed up for the real estate exam to be come an agent and have been studying for that as well. Bigger pockets and its community have been great. Meet some local investors that are around the same age and same experience as me and some that are a little bit further along. Had coffee with a few and got to pick their brain for a while. Its very refreshing to see a group of people that want to help newbies get started i hope one day i can pass some knowledge and experience on to a rookie like my self. Ill keep you guys posted on anything new.
Seems like you're doing some extensive homework and networking! That's great! I too am in the area, Clovis, and am new to real estate investing. Wished there was an easy answer and "how tos" but as we all know, there is never an easy route. If you hear of any local groups of some sort, please let me know. I'd like to join in and listen.
Hey @Scott Bliatout
here is a local REI Club
http://www.meetup.com/investing-486/events/2226514...
I just Joined waiting for the first meeting
Very excited we put our first offer in today on a house. I hope this is the one.
Originally posted by @Yosef Fares:
Very excited we put our first offer in today on a house. I hope this is the one.
I just found BiggerPockets today, and am starting to learn, can't wait to hear how it goes. Fingers crossed for you!
Cindi
So the offer i put in on the house wasn't rejected but it wasn't accepted. They just ignored it so it expired. The house is still on the market but i just don't see any profit offering what they want or even going up so I' waiting on something to pop up. I did find a great deal in Madera that was a short sale and had huge profit potential in it. I found it the first day on the market. The issue is they wanted cash only. So i thought about Hard Money. I ended up showing it to an investor friend of mine that has agreed to partner with me on his next couple flips so i can learn the ropes. His REA looked at comps and they loved the property and put an offer in that day. If they get the house they said they would take me on as a partner and split the profit with me. I hope it works out but if not im happy at least i found a good deal. One thing that I have noticed is that everyone around me that isn't an investor is so scared of trying to do anything that involves getting your money to work for you. It is the most frustrating thing about being a newbie. I hate negative people.
Also I've been getting ready for my real estate test next week and im feeling good about it.
Originally posted by @Yosef Fares:
I did find a great deal in Madera that was a short sale and had huge profit potential in it. I found it the first day on the market. The issue is they wanted cash only.
A lot of the short sales requiring cash need a new well. Without water they won't pass any kind of financing. New wells are typically dug to 600' (depending on which part of Madera) and can cost $15-25k.
I'm sure your friends have done their due diligence and hopefully they got a great deal! PM me the address if you'd like a local opinion.
@Brandon Hopkins Yeah i know all about the well problem. That's why this is so good because it is on community water there is no need for a well. But with that being said this friend of mine is looking for houses with dried up wells. he has access to a drill and has been drilling his own wells on houses that need them. So if you find any send them my way. The house is in the Ranchos so the comps are really good. I think the reason they want cash is because they don't want to wait 6-8 months for the bank to accept the offer and wait an extra 45-60 days for the loan to go through. ill keep you posted
Wow, good luck on that @Yosef Fares!
I also listened to the audio book of Rich Dad/Poor Dad months ago and became very inspired. It changes your mindset which I think is why so many people on BP have mentioned it. Every time I want to whine about something at work, I remind myself that this is the way it is when you are stuck working for "the man" as they say. I'm looking to have that future passive income. I've always worked on my stock market portfolio and real estate was just a dream. After finding BiggerPockets, I now think it could really be a reality for me. My goal is to take the next several months and LEARN but put in an offer by the end of this year. Probably too long of a time frame for may people, but that's just my personality. I like to research and analyze before I take the plunge on something. Heck, I researched my big screen TV for a year before I bought I bought it. lol
In reference to what @Brandon Hopkins said, I grew up in Madera and my brother just had a new well drilled not too long ago on my dad's place. The wait was many months and the cost was closer to $35K. It's a 40 acre farm and the water will be used to also irrigate the orchard. That may be the reason for the higher cost than was mentioned by Brandon.
@Cindi Boyer
Congrats on finding BP! I just found out about it a few weeks ago myself. I've been listening to all of the BP podcasts since the beginning, 1 or 2 of them per day plus watching any webinars or whatever on the Youtube channel while I drink my morning java. I think I'm up to Podcast #50 or so. Really great information!! I really wish you the best!!
@Yosef Fares I just wanted to thank you for starting this topic as I am a total newbie with a very similar background to you (married, have a primary residence, 1 rental, father is a broker, work full time, studying for my sales agent license, and devour books on RE and wealth). You seem a lot further down the path of doing your first flip and I look forward to following your posts to learn as much as I can. I do not have any cash saved up for a purchase, but do have a good amount of equity in the properties that I hold now as a potential source of funding. Wondering if this is a less preferable way of financing a down payment on a property? I was also wondering if the MLS has been your main source for finding deals? I find that the market in my area (Los Angeles) is a bit over-heated and can't seem to find anything that looks promising as a flip potential. If anyone has pointers in how to get started with financing and finding good deals in L.A. (in light of the above) I am ready to listen and learn!
Welcome to Bigger Pockets. BP is a treasure chest full of resources. You will find resources here from blogs to pod casts and forums. You can also send messages to members which is my favorite part of the website.
@Richard Yu I noticed that you have a 1 rental and 1 primary residence. We are purchasing our 1st home, primary residence. Which one did you purchase first and did you find it helpfully for the next one?
Originally posted by @Joseph Coach:
@Richard Yu I noticed that you have a 1 rental and 1 primary residence. We are purchasing our 1st home, primary residence. Which one did you purchase first and did you find it helpfully for the next one?
@Joseph Coach My current rental was my primary for a long time. Eventually, had some money saved to purchase a 2nd property (current primary). Having equity definitely helped us in the loan process for the 2nd property. Hope this helps and wish you the best of luck with your first purchase!
@Richard Yu that's makes a lot of sense and the way I wanted to go but my wife "needed" this right now because I took "too long". So long to house hacking. Thanks for responding and fast too!
I'll save up and hopefully have some appreciation before purchasing the next one. Thanks again!
Now back to the fresno Ca flipping diary
(Looking forward to the updates)
@Jeanie H. Yeah it is a great book and really has changed the way i look at money. I tell all the high school kids i coach that they have to read that book. I wish i had that knowledge and mind set when i was younger. Right now I'm getting through the book "Millionaire Real Estate Investor" which is also a great book. Good luck on getting started it is a learning process your doing all the right stuff.
I'm glad this topic has been helpful to you when I started it I knew there were others going through this Newbie phase and thought we could all share our progress on getting our first flip. I have also thought about using some of the equity in my homes to get extra cash to invest. I re-watched the BRRR webinar yesterday to try and really understand that strategy as well. Here is why I'm not going to touch any of my current properties, I have paid down the loan on my rentals pretty low and have switched to a Bi-weekly method of paying to knock 4.5 years off of the loans. I'm going to soon re-finance at lower interest rate because the one I'm at now is way to high. Once i do that My payment will be lower and i will be paying more to the principle. I will continue to make the same payment as I always have. So right now one of my payments are 1050 I rent it out for 1250 when I refinance My payment will drop to lets say 850 I will Continue to pay on that mortgage 1050 this way I can pay that mortgage off faster and get that property to be 100% cash flow sooner. From my understanding if you do a cash out refi then your 30 year mortgage starts all over again at the new value of the property with lower interest rates. I just cant start over on those properties at a 30 year mortgage. My next buy and hold i will do the BRRR strategy and begin leveraging my money to the max from that point on. Its easier for me to justify doing that on a new property after a year of seasoning and re-starting the mortgage then on a property i have been paying off for a while now. The way i have been saving up for my down payments is the strategy of paying yourself first. I put away $650 a month guaranteed into a separate account with my financial adviser. This money is only for investing. If i have any extra cash at the end of the month or i do some personnel training and get extra cash that month it all goes to the investment account. Out of sight out of mind. Eventually that account will build and you'll have your down payment money. This is how I've done it. I do side things that bring me extra cash as well such as private athletic training. I coach multiple sports that give extra pay and run the strength program for teams at our high school that give extra pay. Any time i get that check it goes into the investment account. It may take a while but i feel in the long run it will pay off. Good luck though on whatever you decide to do on acquiring that down payment cash either way you can't go wrong. As far as finding deals I agree it is the hardest part about trying to flip. I do use the MLS mostly but when there is a good deal that pops up you are usually competing with cash buyers so unfortunately my offers have never been accepted. The key is finding them before they hit the MLS but I'm finding cash talks through that method as well. This is why Im thinking about Hard Money or really trying to bring on a private investor with me that fronts all the cash and i do all the work. Hopefully my investor friend can take me on as a partner on his next couple flips and then I'll do that for a while and possibly get a buy and hold and leverage that money for a flip on my own. But it is tough right now to find a deal for a flip with out the cash to give you the advantage. Good luck and keep em posted on your progress.