This Month’s Mail Bag Question comes from Orlando Realtor Matthew Rollo:
“How did you fund your first flip? How did you fund your most recent flip? I am curious to see the difference, if any, so when the time comes this year I know what I need to have to begin the process myself.
Better to Flip with a LLC or using your own name?
Any information you have for someone looking to do their first flip, other than finding the deal, would be a great read.
Thanks in advance!”
As an investor and lender, we are always intrigued by what motivates you and what is your “WHY”. All too many “jump” into this business like a moth to a flame after attending seminars, working with various guru’s, watching reality television etc. yet do not fully understand what they are getting into. This is a business and it takes a great deal of knowledge, massive action, and for lack of better words, blood sweat and tears to make it work. This is a relationship business, and if you are serious you will have to have skin in the game as well.
Building your team is imperative and it is a must that you surround yourself with those that know what you do not, and can do what you cannot. We’ve had many beginners say “so what if I fail? you get the house anyway”. Some lenders will gladly set you up for failure and that is simply the way they do business while others don’t want your failures, their job is to deploy capital responsibly, they want you to come back for more. Your ability to perform, credibility of your team, and ability to repay the loan is what we truly look at then we’ll look at your deal. Using leverage responsibly to grow is great but all too many will over-leverage and if your memories are still intact our last crash was a great example of over-leveraging. Market cycles & knowing what strategies to use in each cycle, what economic indicators should you focus on to ensure you are staying ahead of market conditions is all part of the diligence process you need to understand. That is if you intend on making this a career.
Your exit strategy and ability to handle plans B C & D if necessary will be scrutinized and should be. This isn’t child’s play though for some veterans of this business it may seem that way due to repetition. They have their systems, tools and resources and operate in machine like fashion which is what everyone aspires to do yet so few actually accomplish.
If you are not using an entity it speaks to your lack of knowledge which is also an alarm for a lender. Someone gets hurt on your project and files suit against you they can come after everything you have not just the asset. Building wealth is just as much about preserving it gang. Even if you are wholesaling set up your entity get the right “counsel” involved to guide you and operate it like the business it is. Reach out to a local flipper or whatever strategy it is you wish to engage in offer them some value in return for knowledge about how the “How To” and see how things really work. Perhaps partner on a deal or two.
Here is an excerpt from a friend & newbie “flipper” Beth Franken who is documenting her journey through her rehab/flip for Tribune newspapers,
“No doubt I wonder what the heck did I get myself into sometimes. So many things I cannot control both global and personal, inflation, bubbles in the market, the ups and downs of my day job, all those unpredictable elements that threaten the promising outcome I was so excited about at the beginning of the project.
Not to be melodramatic, but with the wrong combination of forces I could not only lose the flip but my own home too since I took out the HELOC to do this. This I’m learning is what you must have to flip a house:
“Good math skills (or a brother with them). A trust in the market and/or faith in witchcraft, and finally you must have nerves of steel. Certainly the risk is calculated and I did my due diligence, but the gamble of it all comes from the forces and phenomena I have no control over”
As you may be able to tell, Beth realized a great many things through her journey, one of which was to never put her own home at risk! Among myriad other lessons, having plans B, C, & D, also known as multiple exit plans is absolutely a MUST. Finally, having someone with previous flipping on her team or a confidant to discuss things with would have provided many of these insights upfront before taking the plunge into becoming a “flipper”. Thankfully, she did complete the project and sold it for a reasonable profit, meaning she earned while she learned and that is priceless!
Good Luck to all and remember “The master has failed more times than the beginner has tried.”
P.S. We are always looking for action takers if you’re interested in a career and are in Orlando contact us today….
