All Forum Posts by: Daniel Botvynko

@Daniel Botvynko - Also a happy Renovo client here. Regardless of whom you use, you are going to need more money than you originally laid out. I love flipping and there are nice checks to be made in Chicago, but many folks underestimate the amount of capital needed to succeed.  

As a first timer, you'll prob get 70% ARV or 85% of LTC, whichever is less. Assuming the 350k ARV you mentioned is accurate, you'll get a loan of 245k. If your rehab is 50k that part will be held in escrow until drawn upon, so your original loan balance will be 195k (245k-50k). So you're bringing 55k to the closing table (actually more than thatonce you account for all fees).

In addition, you get your draw money once work is completed so you'll need working capital to order materials and then get reimbursed. You'll also need funds to pay your holding costs, a 245k loan at 8.5% interest only is $1,633/m plus taxes, insurance, utilities, landscaping...etc, so somewhere around 2k/m holding costs.  Lastly, if your budget ends up being 60k or 70k instead of 50k, you're coming out of pocket that difference so you'll need those reserves so you don't get caught stuck with an unfinished project. 

Add it all up and you probably need close to 80-100k to get this done through a HML, whether it's your money or a partner you bring in. This isn't to deter you, it's to prep you so you can succeed when you pull the trigger.

Hey Daniel,

I am also in my early twenties and was struggling to find real estate deals for a couple years.

With low inventory and real estate investing become more popular, a majority of the best deals will get picked up in a couple days by an experienced investor or someone who has enough saved up to afford a large down payment or cash offer. We are also not going to win a multiple offer situation.

In my opinion, that leaves us, the beginners, to try and identify properties that have been on the market for awhile (30-90 days) and try to get a good deal.

A good deal could mean $25-$75k under listing price, seller credits at closing for down payment assistance or repairs, and finding a way to update the property to create sweat equity.

Hopefully that was some helpful advice. Message more if you would like to know how I purchased my first property about a week ago in Irving Park.

1. You'll know if you're in the right spot you can get approved with a lender (private, Hard money or bank that can lend nation wide. Unless of course your plan is to use your own $ to renovate as well.

2. You'll know you're in the right spot if the the After Repair Value of the property is high enough to actually make some money flipping it.  Properties that only cost $10K to $40K to purchase are usually in locations where the After Repair Value is $100K or less.  Good places to buy and hold but may not necessarily be a good spot to flip.  

3. You'll know you're in the right place if the Average Days on Market to resell is low. What's low. In today's hyper market low is 10 days or less.

4. You'll know you're in the right place if you can execute more than one exit strategy. If you're unable to sell the property after you fix it, can you refinance the property, pull all or some of your $ out and rent the property

I could go on but my message is don't get enamored with the low acquisition price. The $ is made on the backend from selling or renting out the property. 

@Daniel Botvynko

Why can't you get a loan?

When the numbers get that low on a flip, the risk goes up dramatically. Houses that are that cheap typically are that cheap because no one wants them, which is something you need to exit a flip successfully. The difficulty also increase on a tight margin because if you need to travel to it and pay for a plane ticket and a hotel, or a roof or HVAC system goes out, and it can take a major chunk out of your margin or put you in the red. 

Have you considered doing BRRRR deals in a slightly higher price point? Maybe the low 100s. This gives your some wiggle room, and then your exit is based on the refi and cashflow instead of people buying a 55k home.

 Nothing wrong with investing out of town but do your research. Don't get "lured" to a location just because the prices are lower than Chicago. Need to determine whether it a good area to invest in. Is the area growing? What is the average rent in the area?  etc. You can do quite a bit of research online to help find a good area to park your money.