Posted by Dean in NC on July 14, 2008 at 11:46:02:
thanks - -makes sense - -that’s why I love this board - always has great experience!
Dean
Laid off now what?? - Posted by Dean in nc
Posted by Dean in nc on July 13, 2008 at 10:55:55:
I’ve been laid off from my regular job which was providing buying power for rentals. When I fill vacancies between that and my wife’s income, we’ll do a little better than break even. I wanted to jump to full time RE investment in a year or 2 but this came early. I’m sure others here have been forced into full time sooner than they wanted. Without the ability to borrow because of DTI, I’m thinking I’d like to do some hard money flips for modest profits. Any advice??
thanks
Dean
Re: Laid off now what?? - Posted by Chad (MD)
Posted by Chad (MD) on July 13, 2008 at 18:10:42:
A lot depends on your family’s situation: your financials, experience, level of persistence, tolerance for risk, etc …
You said with your rentals and your wife’s income you barely break even. Did you mean break even on paying for the rentals or break even on your entire family budget?
You said you planned to become a full time investor in a year or two, and you mentioned flipping and landlording.
The problem with landlording – at least in my experience – is that it doesn’t build cash reserves quickly. I started out wholesaling then switched to rehabbing (which I kept as rentals). My houses cash flow nicely, but I am cash poor. I decided several months ago to focus on wholesaling until I got out of debt and built up my cash reserves.
The good thing about wholesaling is that it’s instant cash. The bad part is that it’s not guaranteed. It may take a long time to find a deal, and even to do that you have to know your market very well.
Do you have enough equity in any of your rentals to sell for a nice profit? That would give you a cushion and some cash reserves while you got your business going.
Wholesale Wholesale - Posted by Kenneth Hocking
Posted by Kenneth Hocking on July 13, 2008 at 14:35:10:
Dean,
In reality you will need to look for a Partner or other investors to FLIP wholesale deals to in volume.
Hard money is not much different today than Mortgage companies in that MOST are requiring the ability of you to pay for the New property out of the income you can prove from old properties and the other incomes like a Job.
With stated income products all but gone I think it is SAFEST for you to look to get really good at finding DEALS that will give you enough room to make SOME money but pass the bulk of the profits on to investors that have credit capacity and Cash to actually hold Rehab and flip or rent the homes.
With no income coming in on your side you need to focus on RE that can generate cash in Chunks coming in and that will be wholesaling where a little money can be risked to return for chunks of cash
Using Hard money to buy properties that you can not refi as a safety valve is a very risky game and should not be attempted without a solid sales maret willing to buy the fixed up property and I do not know of many SELLER’s market in the US at all right now.
my advice, read study become an expert at Wholesaling to those established to fix and hold or flip…
You will learn your market very well and can replace a full time income as you build up cash and transaction history then you will have credibility to approach the small banks you will also need 2 years of self employed tax return to get refied off at conventional lenders…
Learn to wholesale if your jumping in head first full time!
Wholesale Wholesale - Posted by Kenneth Hocking
Posted by Kenneth Hocking on July 13, 2008 at 14:33:37:
Dean,
In reality you will need to look for a Partner or other investors to FLIP wholesale deals to in volume.
Hard money is not much different today than Mortgage companies in that MOST are requiring the ability of you to pay for the New property out of the income you can prove from old properties and the other incomes like a Job.
With stated income products all but gone I think it is SAFEST for you to look to get really good at finding DEALS that will give you enough room to make SOME money but pass the bulk of the profits on to investors that have credit capacity and Cash to actually hold Rehab and flip or rent the homes.
With no income coming in on your side you need to focus on RE that can generate cash in Chunks coming in and that will be wholesaling where a little money can be risked to return for chunkc of cash
Using Hard money to buy properties that you can not refi as a safety valve is a very risky game and should not be attempted without a solid sales maret willing to buy the fixed up property and I do not know of many SELLER’s market in the US at all right now.
my advice, read study become an expert at Wholesaling to those established to fix and hold or flip…
You will learn your market very well and can replace a full time income as you build up cash and transaction history then you will have credibility to approach the small banks you will also need 2 years of self employed tax return to get refied off at conventional lenders…
Learn to wholesale if your jumping in head first full time!
Re: Laid off now what?? - Posted by brandoncbsre
Posted by brandoncbsre on July 13, 2008 at 11:49:56:
At the risk of being attacked by the brokers here I’ll resond in my usual manner…talk to a small local bank. If you have had a good track record they may allow you to use commercial loans to continue buying. You may need to do them as rehab loans based on ARV or put 20-25% down. Either way the rates will be better than hard money. I have made 2 purchases since being laid off last year and am getting ready to close on the 3rd.
Good Luck
Re: Laid off now what?? - Posted by Dean in nc
Posted by Dean in nc on July 13, 2008 at 19:06:45:
yes, with rental income and my wife’s all our bills are paid, but we’ve been used to having a lot of padding and disposable income. I do have good equity in some of our houses but don’t want to tap into that unless I have to. I would like to learn to wholesale as it looks like that’s what might help in the near future. The market here is still ok -slowing but not what it’s doing in other parts of the country. There are still mortgages available and a need for housing so I wanted to do lower-middle income houses that a working couple can afford and hopefully clear $10k + each flip. A lot of people won’t touch a flip unless they can clear $30k and I want to be more realistic. I really really really don’t want to go back to work for someone else. Thanks for everyone’s advise
Dean
work your number backwords - Posted by Kenneth Hocking
Posted by Kenneth Hocking on July 14, 2008 at 08:20:52:
ask yourself a question What is it that others see when they “don’t touch a flip for less than 30K” that you don’t see.
A first answer is GREED by most junior investors. but set that aside and assume the stance of an investigative reporter not a competitor.
I will use an example of a home that sells Retail for 120,000 dollars Your competitor will only touch this property if they can Buy it, fix it and flip it for 30K profit “potential” Why is that?
Lets start with their purchase price and assume a 15K budget on Rehab then their purchase price will need to be 120-15-30k of profit or 75K.
Well look at your area holding costs (how long on Market?) assume you can finance with hard money the purchase and rehab…75K at hard money rate of 12% is 750 a month not including taxes and insurance. With a holding period of 6-8 months in most markets to pull average retail of 120K
6 months trying to flip * 750 = 3750
suppose it does not flip and you now have to refi this loan you are looking at 4-5% of the 75K 75K*4%=3,000
Suppose you miss you budget on fix up by something unforeseen and it costs 3,000 additional ( not too uncommon of a miss in rehab.
Now your are at 3750, 3,000, and 3,000 in additional expenses, pretty close to your 10K you said you would target.
If you still intend to sell the property and you only pay your side of the closing costs and only 3% of a Realtor on their side you are looking at 5% off you sales price without seller concessions.
If you include seller concessions of 2% and a discount off you 120 of 5% (reasonable negotiations) here are your new numbers.
120,000 market price
114,000 offer (5% price reduction)
114,000 - 2% seller concessions - 3% Realtor fee - 2% your side closing cost = 106,020
106,020 - 15,000 orig rehab - 3000 in surprise rehab - 3750 in holding n hard money - 3000 in refi to perm financing - 1200 additional holding after refi trying to rent(2 months)
You now have made 5K and were only in the property 8 months vacant so 30K potential Profit evaporated into 5K.
Oh yeah I forgot the 4% for the Hard money Origination points and the closing costs to buy the property but hey its only 5K.
I say this not to be negative but it was an actual Close to example of a deal I did just 4 years ago (when the market was actually strong) and I am not an expert but also not a junior investor.
When your slinging houses Everyone thinks Bought for 75K fixed for 18K sold for 106,000 net to seller means a profit… Time and holding costs better be in every budget you do.
Speed of turn is ALWAYS a Matter of Price which will affect your profit.
My recommendation for you is to test the water on both your ability to refi one of your properties given you new income position. and also test the market pricing and time to sell by listing one of you properties for Seed capital…
Theories are great and 10K is reasonable profit on small deals but look very deeply into the speed of your market and the ability to refi the property into a rental before you sink cash.
Just my 2 cents
Realistically… - Posted by IB (NJ)
Posted by IB (NJ) on July 13, 2008 at 19:23:00:
if all you’re planning to net is $10k, you’ll be surprised when unexpected factors drop it to $5k by the time you get to the closing table.
Are you talking about something you’re going to fix up and then sell when you say “flip”?
Ib