All Forum Posts by: Ariel Salvaro

The main difference between OPM vs. own money is that OPM obviously helps you accelerate your investments - you can usually invest into & flip more properties in the same amount of time with OPM than with own money. 

Craig, 

Most investors make less than $50K per flip, on houses that are $200-500K, so they still need outside capital. 

My guess would be that investors who make $70-150K per flip also tend to flip higher value properties, so we're back to the same scenario from above - their flipping profits do not cover the full value of properties they are pursuing for flips. 

The same logic works if they flip 4-5 properties per year - they are going to look for 4-5  new properties, and we're once again back to the same ratio of profits to property values. 

That would be my guess!

Hi Mark, thanks for documenting your journey - the good, the bad, and the ugly. I will PM you to stay in touch, as I definitely want to see the final outcome!

Hi Jiquez, 

From a HML perspective, a few questions I would ask you about the property:

1. What is the purchase price, what are you rehab costs for such a large property, and finally are those 2 costs covered by your ARV? To estimate ARV, use the 3-5 LOWEST comps to get a conservative estimate - this maximizes the likelihood that you will actually be able to re-sell the property, i.e. to flip it.

2. Is the property in a metro area? Rural areas sell a lot less frequently. 

3. Is the property next to a major highway, or next to a lot of commercial buildings? Properties in commercial areas tend sell for lower prices than properties in residential areas. 

4. Is the property less ordinary, e.g. very large, or high end? High end properties tend to sell less frequently than mid-market properties. 

That's just a few pointers from the top of my head. Hope that helps!

There is a saying in statistics (and related among colleagues in economics, and data science): 

"Garbage in, garbage out" - the algorithms are only as accurate as the data, AND the modeling behind them. Remember when Google Maps' walking routes first came out, and more often than not, they would lead you to a dead end, a high way with not pedestrian passage, and similar problems? Many GMaps' walking routes have since improved, but it was a lot of hard work, lots of user feedback, and lots of work on ground. You cannot substitute for on ground work, especially not in real estate. 

I am sure that Zillow will improve their Zestimates in many regions in time, but I think this will require a lot more work on ground, with local feedback - including getting better data, and re-calibrating the model behind the algorithm. From the case transcript that @Edward Smith so kindly quoted at the top, it sounds like customer service also has the potential to significantly aid this process along. 

The way some contributors are describing recent developments in EADO makes it sound similar to gentrification in Washington D.C. - one wave centered around 10th Street, but has since spread across more of the North East part of the city. It still has a bit more grungy feel to it, and feels less safe than a typical flip neighborhood, but living there, you could see the tide turning in that direction - I personally rented a property from a guy who kept getting new buy-and-hold properties every few years using his rental income from the previous acquisitions. 

In any case, I think with up and coming areas, the best approach is what you are doing - drive around, walk around, talk to people, see what it's really like living there now, and what the near future is looking like. Good luck! 

@Junior Salters, I think in your case, working with an HML could be an option, but you would have to find a really, really good deal to bring them (e.g. a really undervalued rehab project which, after rehab would be worth a lot more than the lowest 3-5 rehabbed comps in that area).

Hi Sean, 

1. Have you tried reaching out to those listed in BiggerPockets' HML database for California?

https://www.biggerpockets.com/hardmoneylenders/cal...

2. You can also network with HML members at your local REIA meeting.

Good luck with your flips! 

Hi Nicholas, 

First, I think you made the right decision in switching from buy & hold to fix & flip. Also, I completely understand your reluctance to move from San Diego - I visited over Christmas break, and it was wonderful - I saw a lot of new developments coming up, restaurants opening, families playing in the parks, and there are a lot of transplants from all over the country. Factor in the great climate, the relatively cheaper prices than neighboring Los Angeles.... As an economist, I think San Diego is one of those metro areas that will continue to grow, and with it, so will the demand for new homes from flippers such as yourself. 

To your original question, usually the ideal timeline is as follows: 

1. form an LLC for your REI projects,

2. identify the HML you want to work with,

3. establish a relationship with them (e.g. we do an integration call with all our new clients where we establish exactly what their goals are, whether and how they can achieve them with us, etc.), 

4. find your property, 

5. quickly check with your HML if their numbers match your estimates, and if yes (i.e. if your HML will fund that deal), make an offer on that property.

@Lee Ripma makes a great point about forming an LLC - it's not always required, but it is definitely advised, not just from an HML perspective, but even generally for your own protection - why put your entire personal wealth at risk, when you can easily protect it with the LLC. Especially if you get into REI full-time, there's always the potential for a lawsuit, or other legal expenses, and it's best to minimize the risk of those things hurting you where they don't have to from the very start.

To identify your best HML, I would recommend both networking with lenders at your local RE meetings (the way @Justin R. suggested), and reaching out to established HMLs from BiggerPockets' database for California (as suggested by @Sean Walton), which you can find here: 

https://www.biggerpockets.com/hardmoneylenders/cal...

There are not that many, and it pays to connect with all of them, shop around, see which ones work best for you. 

I hope that helps make the timeline more clear!

Hi Cesar, 

The HML will usually loan you (a) 70% ARV, or (b) your total purchase price + rehab costs, whichever of the two options is lower. Obviously, if you just need 50k to buy & rehab the property, they would not lend you more (they would not lend 91k).

Another very important point: when you are calculating the ARV, make sure you are staying on the conservative side of the spectrum, e.g. among 10 comps, don't take the average of the top 3 comps, take the average of the bottom 3 comps - because these are the types of comps that the lender will consider when they calculate the ARV in order to maximize the likelihood that the property they are approving for a hard money loan really does end up selling.