The Fine Details

After having defined what The Dream is and having sketched out The Action Plan, I now need the fine details for The Action Plan. My goals were previously broken down into more bite-size numbers which I will share again: 40 units cash-flowing $300 per month and a lump sum of $300K generated through fix and flipping 18 properties. 

To start The Action Plan to get to The Dream, I have decided to start by fixing and flipping homes in the Bear, Newark, New Castle area in DE. I've set my minimum criteria to be 3 beds and 1.5 baths with a minimum square footage of 1200 sf. I won't discriminate between townhouses, condos, or single family homes. I plan to use the MLS system at the first so that I can get a feel for properties and the details of certain areas, and then I hope to network and generate my own leads on distressed properties that meet the criteria. The most important considerations as I evaluate properties are: neighborhood, days on market for comparable properties (AKA "comps"), and the prices of comps themselves.

For financing I plan to use a Hard Money Lender. I am still gathering details on how a Hard Money loan (HML) works, the terms of the contract, how to minimize risk in an HML, interest rates, and due dates of the loan as well. In order to realistically approach a Hard Money Lender, I need to have a detailed and precise spread of numbers (cost of rehabbing, contractors being used, comps for the property, etc.) and a concise and clear business plan for my business. 

Once the HML is received, the first step is to form an LLC in order to buy properties and hold them in the name of LLC as they are being renovated and sold. The contractors will be contacted and estimates received with a clear Scope of Work (SOW) and contract laid out and they will be billed as independent workers with a 1099 form for tax purposes. I expect to start with a list of contractors and to do my due diligence on them - checking on their referrals, verifying that they have their own insurance, checking to see if they pulled the correct permits for previous jobs, etc. I will have an incentive built in to the contract and SOW to ensure that the work is done quickly, efficiently, and correctly. 

Once the home has been rehabbed to the market specific conditions, I will use a Real Estate agent team that I trust to sell the home as quickly as possible to minimize holding costs. I will have the homes staged to increase buyer imagination and landscaped as well as part of my brand and reputation. I will ensure that any offers received meet the minimum numbers in order to preserve the profit margin and work with the seller to negotiate the contract price to the correct dollar figure. There is a 90 Day rule for FHA loans in my area, so I will need to be aware of that in trying to sell the home. 

Once the home is sold, I will take some of the profit from the sale and set it aside for tax purposes at the correct time. I will also use a part of the profit generated to begin paying down the debts that I had previously specified. The remainder of the profit will be invested back into the company so that I can ideally get more loans to fix and flips houses to create both investment capital to buy and hold properties for renting in addition to getting the lump sum needed to pay off my debts as I build my investment portfolio to the target 40 units. If opportunities arise to fix and flip more homes beyond the goal set here, and if it turns out that I enjoy the experience of being in the fix and flip business, I can systemize my processes to create a smooth fix and flip process and hire in the necessary teams to create a viable business with in-house employees to continue the fix and flip process. 

The skills that I need are a solid and comprehensive understanding of the fix and flip process from start to finish, accurate research in the market area I am targeting, and the communication and personality skills to negotiate contracts.