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Answers (5)
- agentblu15
- Contributions:353
Pasadenan is correct-- I was providing a very simplified example regarding costs. I was basically assuming that all of the purchase costs were included in the "purchase price" that I gave for the property. But you definitely have to figure that into your model, along with the other items Pasadenan mentioned.
Another reason to use your own funds instead of a loan is that it gives you more freedom with deadlines. You you're making a monthly mortgage/loan payment on the property, and you start running behind on your renovation timeline, those extra monthly payments can eat up your profits and put you in the red very quickly. But, if the money was out-of-pocket, you dont' have that monthly juice running, so a delay by your contractor, bad weather, backordered supplies, etc., won't be draining your bank account.
Another reason to use your own funds instead of a loan is that it gives you more freedom with deadlines. You you're making a monthly mortgage/loan payment on the property, and you start running behind on your renovation timeline, those extra monthly payments can eat up your profits and put you in the red very quickly. But, if the money was out-of-pocket, you dont' have that monthly juice running, so a delay by your contractor, bad weather, backordered supplies, etc., won't be draining your bank account.
- Hamp Yonce, "Zilluminati"
- Contributions:3463
Good luck with that.
- Pasadenan
- Contributions:21466
Agent Blue left off the transaction costs.
If you don't have a clear business model, and LOTS of experience, this is a sure way into bankruptsy.
You can't invest other people's money and expect to be considered an "investor". You will make more money easier with a real job. If you are going to start your own business, make sure you understand the cash-flow, and that you have experience in the specific field. Most new business fail within the first year since they didn't do proper planning and didn't allow for contingencies. No lender in their right mind is going to finance a business operated by someone with no plan and no experience and no personal investment.
The profit margin on most fix & flips is fairly small, so why do you want to give 6% to the lender and 6% to the realtors? Can you do all the construction yourself so that you would be doing that kind of work regardless, and so you won't be paying 15% overhead/profit, plus 40% payroll taxes, vacations, sickpay, insurance, licencing... to some unknown contractor?
If you don't have a clear business model, and LOTS of experience, this is a sure way into bankruptsy.
You can't invest other people's money and expect to be considered an "investor". You will make more money easier with a real job. If you are going to start your own business, make sure you understand the cash-flow, and that you have experience in the specific field. Most new business fail within the first year since they didn't do proper planning and didn't allow for contingencies. No lender in their right mind is going to finance a business operated by someone with no plan and no experience and no personal investment.
The profit margin on most fix & flips is fairly small, so why do you want to give 6% to the lender and 6% to the realtors? Can you do all the construction yourself so that you would be doing that kind of work regardless, and so you won't be paying 15% overhead/profit, plus 40% payroll taxes, vacations, sickpay, insurance, licencing... to some unknown contractor?
- agentblu15
- Contributions:353
Many successful real estate investors will tell you to start SMALL -- your first property should be something that you can purchase either with your own out-of-pocket money (no loan) or with a very small loan. Then renovate, sell, and purchase a slightly more expensive property using the original funds and part of the profits. Wash, rinse, repeat, slowly building up your bankroll.
This method takes time, and is not a get-rich-quick plan, but it keeps you out of credit problems, ensures that you don't bite off more than you can chew, and keeps you from being indebted to and reliant on lenders.
For example: buy a $25000 REO, put in $10000 in renovations, sell for $45000. Bank the $10000 back for costs, and an additional $5000 for profit. Then dump the $30000 left back into buying your next property. Put in $10000 for renovations, sell for $53000. Bank the $10000 back for costs, and $5000 for profit. Now you have $38000 to work with, and $10000 free and clear profit in the bank. Wash, rinse, repeat. Once you build the bankroll and get the hang of things, you can start doing 2 properties at once, and up from there. Just always remember to set spending limits for yourself in terms of renovation costs, don't overextend yourself, and don't ever put yourself in an all-or-nothing situation, where 1 failed property can set you back to square 1.
This method takes time, and is not a get-rich-quick plan, but it keeps you out of credit problems, ensures that you don't bite off more than you can chew, and keeps you from being indebted to and reliant on lenders.
For example: buy a $25000 REO, put in $10000 in renovations, sell for $45000. Bank the $10000 back for costs, and an additional $5000 for profit. Then dump the $30000 left back into buying your next property. Put in $10000 for renovations, sell for $53000. Bank the $10000 back for costs, and $5000 for profit. Now you have $38000 to work with, and $10000 free and clear profit in the bank. Wash, rinse, repeat. Once you build the bankroll and get the hang of things, you can start doing 2 properties at once, and up from there. Just always remember to set spending limits for yourself in terms of renovation costs, don't overextend yourself, and don't ever put yourself in an all-or-nothing situation, where 1 failed property can set you back to square 1.
i'm starting my business has a house flipper invester. How do i find funding?
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