Webinar: Starting Out as a Real Estate Investor
Real estate investing is a great way to not only grow your personal income, but make a positive impact on your community. There are several different real estate investing strategies, but for this webinar we focused on the fix-and-flip strategy. Fix-and-flip investing is the purchase, renovation, and resell of a property within a short period of time – typically around nine months.
There are several different factors that go into completing a successful fix-and-flip project, from finding a property to hiring a contractor that you as the investor will need to plan for before you buy your first flip. Having a sound plan in place will help you mitigate risk and allow you to prepare for unforeseen issues. In this webinar we detail those steps and much more to show you how you can manage a rehab project and avoid making mistakes that can keep your project from being a successful investment.
As a specialty finance lender, we work with real estate investors of all experience levels and we want to provide you with the tools you need to be successful. We hope that you find this webinar to be a great resource for you as you look to get started as a real estate investor. If you have any questions about Lima One Capital or our loan programs, please reach out to us at 800-390-4212, we would be happy to speak with you!
Dalton Elliott: Hey everyone and thanks for joining today. My name is Dalton Elliott, and I’m with Lima One Capital. Today I’m going to take you through the steps on getting started as a real estate investor. If you have a property in mind, want to get pre-approved, or just want to chat with a consultant about financing, I’ll post the phone number at the end of the webinar. We are located in Greenville, South Carolina, and we’re open 9:00 am to 6:00 pm Eastern Monday through Friday. We’d love the opportunity to chat with you and just discuss your financing needs.
For today’s agenda I’m going to take you step by step through a rehab project. We’ll start out with finding the perfect property, then move all the way through to finishing rehab and selling your project for a profit. We’ll also get to take a look at example flips from successful Lima One Capital clients.
First up it’s finding a property. We have a couple different resources that are invaluable whenever you’re scouting out a property that’s suitable for a rehab project. The first one I want to talk about is going to be wholesalers. This is going to be individuals who put properties under contract, and then they’ll assign them to you allowing an investor to close as the end buyer. They’re often non-MLS transactions. A lot of times it’s all relationship driven. You’ll develop a relationship with a wholesaler, and then be able to get kind of first pick of properties before they hit open for the public. A lot of times it’s going to be distressed properties that wholesalers are able to get a hold of. As a flipper, that’s going to be exactly what you’re looking for, a distressed asset that you can improve and then sell for a profit. Where to find wholesalers? You can make contacts in your local market through real estate clubs and other events that go on. Almost all major markets have groups that meet weekly, monthly, and are geared directly to the real estate investor.
Jumping down to foreclosures, these are going to be where some of your best deals are had. They have dried up a little bit since the real estate crash, but you can still find them throughout the country. One thing to note with foreclosures, it can sometimes be difficult as a lot of times you’re competing with cash offers. Cash is king, so if you’re dealing with some more experienced folks on the other end competitive wise, you just have to be as quick as possible on nailing down foreclosure properties. Then auction sites, auction.com, Hubzu, Zillow, those are all great resources to find properties that are going up for auction. A lot of times it will be bank REOs, banks trying to rid themselves of distressed assets. Again, another great resource whenever you’re looking for distressed properties to buy.
Then last but definitely not least is MLS, the mortgage listing service. There’s absolutely nothing wrong with MLS. It is an invaluable tool for finding comps, tracking the market, and finding properties that are up for sale. The one thing to note with MLS is right now you can go onto their website, punch in a zip code, and see all the properties that are listed. There are a lot more eyes on properties on the MLS, so again you just have to be quick whenever you’re looking at properties on MLS.
Now creating a budget, what all do you need to make a rehab budget. Say you’ve found a great property through one of the resources we mentioned and now you need to figure out what you’re going to do with the property so you can improve it and sell it for a profit. The first thing is know your market and where your flip fits into the market. You want to see how the property in its current state compares to other properties around it, and what you need to do kind of as an end goal where you want your property to be. Again, talked about MLS, some of the other sources, Zillow is a great source for recent sales as well, so just track some online due diligence, see what properties are going for, and that will give you a good idea of what you need to do in order to bring your property into the range of being a profitable flip.
Once you have an idea of where you want to take the property, go ahead and complete a list of repairs. Be thorough and comprehensive. Top lenders like Lima One Capital, they’ll also foot the bill for an initial budget inspection to make sure no major items were omitted from your game plan. We act as a safety net there for you. But put out a list of repairs, and especially if you are new to the space, or one thing to keep in mind, is budget for unforeseen issues. One story that is recurring throughout the industry is you go into your first or second flip relatively new to it and you tear down some drywall and find some terrible disaster behind the drywall that you didn’t anticipate whenever you bought the property, but now that property is yours and you’re responsible for getting it in improved condition, so you always want to budget for unforeseen issues.
Tying on to the next item, it’s really important to select a solid experienced contractor. They are going to be an invaluable tool, especially early on, on helping you make sure you have proper plans and contingencies in place. Then obtain an estimate from a contractor. Once you figure out what you want to do to the property, get in touch with a licensed seasoned contractor and have them work up an initial estimate and see what exactly it’s going to cost. At that point you’ll have your property cost as well as your cost for rehab, and then you will have done your due diligence on comps for the area, and you’ll know what profit you’re looking at for that particular deal.
Finding financing, there are a couple different options in this space. The first one I want to touch on is going to be traditional banks. Traditional banks generally are not set up to do large scale financing of rehab projects. Mostly bank financing is geared towards the consumer side. They can have much tighter, and usually do have much tighter underwriting restrictions, and leverage generally is not going to be as high as if you go toward one of the other options up on the screen. Also, talking with investors and builders across the country who have worked with banks and continue to have good relationships with banks, one area that could use improvement based on their feedback is drawl times. Whenever they complete phase one of the project and they go to request for a drawl from the bank to get their funds reimbursed, it can take a week and a half, two weeks. That’s a very long time on a project that averages anywhere from three to nine months. That’s one thing to keep in mind on a traditional bank side.
The next side is a hard money lender. Pretty much all of the financing groups in this space, Lima One Capital included in that lot, started out as small regional hard money lender. With that, you’re going to usually have some high fees. They may have application fees, junk fees, other fees put in there. It’s not going to be the cheapest form of money by any stretch. Also, depending on how market specific they are, or their capital structure, whether it’s just a couple high net worth individuals that make up the capital structure of that company, then they could be very picky about what they like or don’t like. Depending on the day of the week and which investor has funds ready to be deployed, a deal may be good on the 1st of the month, but on the 15th of the month if it’s a different investor backing deals for that period of time could be an issue getting a particular deal through just because it doesn’t sit well. So it can be hit or miss in terms of obtaining financing for properties.
Then the third is private lender. This is one area where Lima One Capital falls into play. Your private lenders will have institutional grade financing designed specifically for you, the real estate investor. These private lenders generally don’t lend to consumers for if you’re going to buy your own primary residence. It’s all non-owner occupied residential real estate investment. These private lenders live and breathe non-owner occupied investment rehabs, in this case. They can generally do very quick closings, so week, week and a half.
Then streamlined construction drawls. We touched on earlier how there’s a very wide range of how long it takes different institutions to get your money to you. Private lenders are going to be fast. It’s going to be a few days. At Lima One Capital, three or four days from the time you put your drawl request in to the time the funds are wired out to you. It’s a very quick process because we understand that you have an active project going on and it’s incredibly important that you keep your contractors and everyone you’re working with on the property happy and paid. We have an in-house construction management team here at Lima One Capital, and probably sitting 100 feet away from me there’s a team and their sole task every day is to work with investors like you on getting your drawls processed quickly and efficiently.
Now we’ll run through what you need to complete the rehab. Make sure you vet your contractors, especially on the newer investor side. You want to make sure you are working with someone who’s seasoned, who’s knows what they’re doing, who has been through a lot of projects, and by having gone through a lot of projects they will have run into some road bumps along the way, so you definitely want to lean on their experience and guidance throughout the project. It can be a huge breaking point. We hear all the time new investors had to switch contractors because the first one they got linked up with just was lackluster, wasn’t pulling weight. So definitely just do your due diligence, the same as you would on the property itself. It’s almost as important to do that same level of due diligence on the contractor.
Then set a schedule for completion of each stage of rehab. Be disciplined. Those way points allow you to measure progress and it lets you see where you’re cruising ahead of schedule and maybe some areas where you’re being held up and you want to pay some more attention to. Have a game plan whenever you go into it. Not just that I’m going to do these 50 items to the house and then sell it, but be a little more disciplined and have different stages set out. Of course, whenever you plan each stage in advance, it allows a smooth transition. It lets you have electricians in one day, and then they have all of their stuff done after the plumbers were in but before the painters came. The more scheduled and disciplined you can be about that, the smoother the process is going to be for you and everyone else working on the project.
Finally, selling the property. You’ve done all the work. You did your due diligence. You found a golden property. You vetted your contractor. You’re working with a great contractor. You did all the work to the property and turned it into the gem of its area. Now what do you do? You want to find a good realtor. List the property with them, and then set a listing price consistent with market comps. This is really important.
You don’t want to have market get comps going for $350 and then you list your property at $600,000. You want to be reasonable throughout the whole process on the market your property is located in, what properties are selling for in that market, and where your property falls into on that spectrum of properties that are being listed and sold. Just be cognizant and realistic about your sales price. Of course, it goes without saying schedule open houses to create interest. Get foot traffic through the door. Flipping through pictures on Zillow is one thing, but having folks come into the house, touch it, feel it, kind of kick the tires, that’s what’s really going to garner more and more and more interest for you.
Now this is probably the most exciting part of our job at Lima One Capital, being able to see successful stories from our clients. This is a cast study in Northwest Atlanta, Georgia. If you look on the left-hand side, you see pictures of before. House has good bones, sturdy property, but very dated. Looks like it’s been sitting there, not much done to it. Then if you go over to the right, this rehabber did an excellent job, gorgeous countertops, beautiful appliances in there, everything stainless, gas stove top. Then the exterior of the house is night and day compared to what it was before.
Then we’ll dive into the numbers on it. Lima One Capital, we lend 90% loan to cost. You only bring down 10% for purchase, and 10% of rehab. The loan amount on this property was just over $128,000. They ended up selling this property for $238,100. Their return on investment was 298%, over $71,000 on one fix and flip project. That’s a pretty nice chunk of change on one rehab project. This particular case study they worked with a great contractor that they had vetted, and that helped them tremendously early on being able to lean on that contractor for their experience. Then of course, like we talked about, it’s all about due diligence, knowing your market, your subject property, what you want to do, how you can elevate it to other comps in the area. That allowed them to capture a hefty chunk of profit on this deal.
Real quick just to dive into Lima One Capital, we are the nation’s premier lender for residential real estate investors. We operate in 41 states and the District of Columbia, so chances are if you’re looking to flip a property we’re lending in that state. We touched on fix and flip, but we also offer rental and multi-family options. On rental, we have short term bridge financing, so two to three years, but we also have long term financing. If you’re looking to acquire a rental property, or rental portfolio, or you have some rental properties and you’re looking to refinance or cash them out, we can absolutely work with you. Rates for the rental 30 program start at 5.25%. If you go to get an owner occupied mortgage for you to purchase a house to live in, you’re talking 4.5% is ballpark what pricing is today. We are barely above owner occupied financing, so incredibly aggressive pricing on the rental 30.
We have two options, one the 5-1 ARM. This option, it’s a 30 year note. You have financing secured for a full 30 years. Then the first five years you’re going to be fixed at a very low rate at or near that 5.25% depending on a couple of metrics we look at on the borrower owned property side. Then the other option we have is a 30 year fixed rate. That’s going to be just like if you go out and get a standard mortgage for your own house. It’s going to be fixed for the full 30 year term. We have options all encompassing for rental portfolios and properties. We go up to 75% loan to value. If you’re purchasing a rental property or portfolio, you just need to bring down 25%. Then on the flip side, if you’re refinancing or cashing out, we will give you up to 75% of the value of those properties.
One really key point here is we don’t run borrower debt to income. If you go to more traditional route, they’re going to run borrower debt to income, and you could quickly cap out on being able to get a mortgage through the traditional route. But we are looking at the cash flow of the property itself, so we don’t run any borrower debt to income. Then on the multi-family side, we have both stabilized bridge financing, so just short term financing for five or more unit apartment style buildings. Then also with the same type of structure, if you’re looking to purchase and rehab an apartment complex, we can also facilitate that transaction. We go 80% loan to cost, so it’s only 20% down. Minimum loan amount is $250,000 for that product.
Jumping back over to fix and flip, before we tie everything up, we’ll start at 7.99%. That’s going to be your experienced groups, they’re doing 15 or more every year. Then on the other end of the spectrum, if you’ve never done a flip or maybe you’ve just done one or two in the past couple years, we will absolutely work with you. A lot of folks in the lending space don’t lend to first time investors, but we are absolutely open to it and we close them almost daily here at Lima One Capital. Absolutely utilize us as a resource. We have an investor center built out so you can give us a call, we can get you linked up on the investor center that has tons of resources for you to use as you’re getting started out.
On the fix and flip, again it’s just 10% down. You bring down 10% of the purchase price for the property, 10% of the rehab budget, and we finance the rest of it, so very high leverage. Of course, we close in 10 days. That’s our average closing time. It’s very quick closing. If you come prepared with your documents, everything good to go, then we order out the appraisal and inspection. Once those come back, we order closing, and then close and fund.
One important thing to hit on too, and this is with all of our products, we don’t charge any junk fees. There’s no application fee, no hidden fees. We have one origination fee we charge, and that’s charged at closing. Other than that, the only thing you pay for is the appraisal directly to the appraiser. That’s at, a lot of folks in the industry will hit you with a $200 application fee, and then a “origination fee,” but then also another processing fee, due diligence fee. A 3.5% origination fee turns into a 5% or 6% fee really quickly. Just be cognizant of the actual cost of obtaining financing. We are honest and transparent and operate that way in every stretch of work we do here including pricing for you. We just keep everything open and honest.
Thanks so much for your time today. Would love to hear from you. We have a full team of consultants here Monday through Friday 9:00 am to 6:00 pm Eastern. All you have to do is give us a call. The number here is 1-800-390-4212. You’ll be linked up with a consultant, and that can be the person you work with from here on out when you’re working with Lima One Capital. We’d love to chat with you, talk about your financing needs. If you have any questions, I mentioned the investor center, we can get you hooked up there to get more information. We’d definitely love to hear from you. Again, you can call us at 1-800-390-4212. Hope to hear from you soon. My name is Dalton Elliott with Lima One Capital. Thanks so much for your time today. Take care.