LLC, Direct Mail and Website... or wait?

Question

Hey everyone,

My friend and I are in the middle of forming an LLC/partnership to start a direct-mail campaign with the initial intent of flipping.

If things go well, we will look into purchasing a rental for the LLC every couple of flips to generate more income for the business.

This is my question: Should we put pause on the LLC/business side of things and just do the marketing and see how things go with the first deal or 2 before we jump in too deep? Or even more so, should we wait on the direct-mail and find a first flip to see if it works out at all?

Our market (DFW) is fairly competitive which is one reason direct-mail looks attractive.

I appreciate any advice or feedback.

Thanks!

Chance Housos · Answer

@Simon Cox  I recommend driving for dollars and calling FSBO and home made for rent signs. Get used to talking to people and hearing no. Once you are comfortable with that you can start mailing if you want. You could possibly do the yellow letter thing and see if you get any hits, just remember that our market is hit very hard( especially absent owners) and you will have to spend a lot of money on marketing. As much as people talk bad about them I would try bandit signs in your targeted areas. They work and the people are reaching out to you not the other way around. That's my opinion. If you have any questions or end up with to many deals feel free to reach out.

Chance

John Santero · Answer

Arlington is a great city. If you were planning on partnership within a LLC, I would first write out LETTER OF INTENT where you both spell out what you want to accomplish and how- detail where the funds are coming from, who is doing what as well as what the percentages are loss or gain.

I would not spend the money on a LLC. You can title your first property where you both are vested , I dont know Texas law but maybe a Land Trust??. Anyway, dont let the legal stuff get in the way yet. But plan to institute it. Also, back in the day, we used to call it farming an area, but pick a neighborhood and walk around and talk to neighbors about buying in the area. Its cheap, you get alot of information as well as exercise! Finally-direct mail campaigns work with constancy. you need to send several mailers - I would suggest giving away some free info on the market to value their home and grab their emails on a landing page. good luck

Alberto Camacho · Answer

The LLC will provide you some protection. I would not buy and hold or flip without one.  You may even want to do a series LLC or multiple LLCs so you can keep the rental business outside of the flipping business.

Just starting out? - go door knocking the foreclosure list. Its free,  easy to get and you'll get area, people and property experience fast. Start analyzing properties as you find motivation. You just might get a deal in the process.

When everyone starts DM looks appealing. Everyone knows finding deals is tough. I mean truthfully how hard can it really be. Owners want to sell and you want to buy right? Just no one really realizes how tough it really is until they try.

In fact be prepared to lose money on marketing. I just completed a multi-touch letter campaign that all it got me was "take me off the list" calls. I did a large door hanger campaign, 80 thousand went out over 3 months, and not one call.

Not trying to sound all grim. Once you find your niche it gets easier. You just have to keep at it to find your place. If you spend your money before you find your way you might get discouraged and stop.

Todd Plambeck · Answer

If your long term goal is buy and hold, I'd suggest a Series LLC.  You can put each property into its own LLC without the additional expense of filing with the state each time.

Brian Mathews · Answer

First of all, make sure you're serious about this.   Hopefully this isn't a half hatched plan you guys came up with over a few beers at a bbq.    Go all in or don't do it.   2nd, make sure you have your financing or cash and ready to go on the spot.   Not thinking about it or have to wait for somebody with the money to approve a bunch of stuff.   If you wait, you'll likely lose the deal.  If you've found the deal, somebody that can write a check immediately has or will very shortly.   I've found those who move the fastest get the deal.

Stay away from the herd of what everybody else is doing.   I'd target owners that realized owning rentals is hard work and cash flow is weak, especially with some stupid loan where the bank makes all the money and you do all the work.   You can accomplish this by looking for hand made for rent signs as was mentioned above.    Find the area you want to own in and look for property management signs and call them to see if they have any owners that are having issues and could potentially want out.   Look at tax rolls for ownership addresses that don't match the physical address you're looking at.   Do the signs and mailers, but they will likely attract a high number of people looking to waste your time and want full retail for their property.    That is the spray and pray approach.   You need targeted leads.

Simon Cox · Answer

@John Santero If we had the cash to go ahead and take care of the LLC without any trouble, would you consider it worth it? My original thought was to set things up the best way possible from the get-go in order to receive whatever comes from our marketing efforts.

Letter of Intent is a must. Thanks for that reminder.

Brian Mathews · Answer

I'd test the waters a little bit before getting too official.   You'll likely soon find out it's much harder than you think with Texas real estate booming.  I might re-think the partnership as well.   They don't always work as well  as one might think, especially if you are friends.  Friends/family and business don't work.   You need clearly defined and written down rules regarding every little contingency that might arise.   Handshakes don't work and life long friendships can be ruined, especially with spouses involved and any perception of one not doing the exact same amount of work and putting in the same amount of money into the venture.   Even if one of you is the financial person and one does the work.   That is a recipe for failure as ones perceptions of value are usually very different.

Percy N. · Answer

@Simon Cox, I would also create the LLC. That way you are ready to pull the trigger when needed and don't have to scramble when you find a deal and time is of the essence.

Graham K. · Answer

Form the LLC now. The deals will come if you don't give up on marketing.

Simon Cox · Answer

@Hattie Dizmond You and @Alberto Camacho make a great point. DM might not be the best route at this point. I'll have to talk with my friend and see what he thinks. Awesome advice about the schools too!

@Todd Plambeck I"ll look into that for sure. Thanks!

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