Discover 3 funding challenges new investors face that will absolutely drive you crazy when you’re trying to find funding for your house flip. This video may well be the key to unlocking the funding you need to successfully flip houses for big profits!
3 Funding Challenges for New Investors
Are you looking for funding for your house flip, but keeping hearing “No”? Do you have a deal that you know has potential, but can’t find the money to buy it? Are you struggling to figure out why it’s so hard to find the right funder? Is it something about you, your qualifications or your finances? Is it the property, its location, its condition, or the comps? This is a VERY common dilemma! In this training, you’ll discover the 3 biggest problems new investors face that will drive you crazy when you’re trying to find funding for your house flip. These 3 will stand in the way of your success, and without overcoming them, you’ll never get a profitable deal done and you could lose thousands of dollars trying!
1. Not Knowing Values
The biggest problem that new investors face when trying to find funding has less to do with the money, and everything to do with the property. It boils down to not knowing values. It should be obvious that real estate funding is dependent on the current and potential value of the property. And there’s no shortage of websites out there sharing their version of the value of properties. Zillow, Realtor.com, Redfin, and many others use a combination of public data, tax records, and other information to provide their estimate of market value. Then lenders have AVMs (Automated Valuation Models) that use a compilation of data and statistical models to estimate values.
But the tried and true method of determining value is based on comparable sales from the MLS (Multiple Listing Service). This is what appraisers use for their reports, and those reports weigh primarily on a lender’s decision to loan money on property. So, to accurately assess value, you need access to MLS comps, and only licensed agents that join the Association of Realtors have that access. Meaning, you either work with an agent to get comps, a service that hopefully has complete MLS data, or you get your own real estate license.
Accurately Assess Value
So, to accurately assess value, you need access to MLS comps, and only licensed agents that join the Association of Realtors have that access. Meaning, you either work with an agent to get comps, a service that hopefully has complete MLS data, or you get your own real estate license. But learning to value your property in its as-is condition, and then understand its potential value after repairs are completed, is a critical skill to make sure you qualify for loans and don’t waste your time, your lender’s time, and your seller’s time.
We’ve seen investors put in weeks or even months of time, spend money on inspections, clean up, and sometimes even start work, only to learn the property is NOT worth nearly what they thought going in, and that the deal will never get funded! Learning the skill of valuing property is vital to your success as an investor, and the first key in obtaining funding for house flips.
For more, check out this training: Determining Property Value the Right Way.
2. Not Knowing Expenses
The next big problem in finding funding is not knowing expenses. Ask any seller what it will likely take to fix up the property and you may well hear: “It just needs a little paint!”. While that’s occasionally true, for the most part, they’re referring to magic paint, and we’ve yet to find that anywhere! But besides the purchase price, the cost to make repairs and any necessary improvements to a property are a critical piece of the equation when obtaining funding.
Estimate Rehab Costs
Your ability to assess what a property needs, relative to the neighborhood and price point, as well as the target buyer, is another critical skill. This will affect not only your ability to get funding, but more importantly, your ability to finish the deal and make a profit. You must be able to accurately estimate rehab costs as you build out a scope of work, obtain realistic bids, and package that for your hard money lender. Phil’s video Estimating Rehab Costs Like a Pro provides more training on the topic.
Know Your Expenses BEFORE You Buy
Our apprentices get calls from desperate, soon to be “former” real estate investors, that purchased a property with their own cash or credit, private money, or even hard money. They’ve already spent all their rehab budget and all their reserves, and they’re out of credit and time to finish rehabbing. Unfortunately, they’re stuck and that’s the last place you want to be. You may have heard horror stories like these already. They’re typically coming from failed real estate investors that learned the hard way; that knowing your expenses BEFORE you buy is make or break in flipping houses. Check out Phil’s book for some epic examples of that in Real Estate Investing Gone Bad.
3. Not Knowing Good Deals
The last big problem you must avoid with funding is not knowing good deals. This is especially important if you’re using your own cash or credit or have access to private money that trusts you more than doing their own homework. Perhaps you were able to skip the appraisal. But are you sure the comps are accurate? And more importantly, the interpretation of value? Did you get a thorough scope of work completed, and detailed bids to go along with it, to ensure you minimize the contractor change orders that they love to use to make more money? You will always have more expenses, but you MUST work hard in your diligence to minimize those costly surprises.
Identify Profitable Deals
So, besides the pitfalls of value and expenses, you need to know your local market: the demand and desirability of the property and area your deal is in, to ensure this is the right flip to take on. Remember, even with a hard or private money loan, with lots of hoops, lenders are protecting their position, not yours. And if you are using your own cash or credit, the buck stops with you! Don’t find yourself stuck in an unfinished flip project, out of money, and out of time, and contacting our team to try and salvage something. Learn to recognize good deals from the outset and when pursuing funding makes sense, compared to when you should just flip the property prior to closing.
Be a Reluctant Rehabber!
Here’s a wisdom key with a lot of miles behind it: Be a reluctant rehabber! Too many new and even experienced investors make the mistake of trying to fit everything in the rehab box, as if it’s one-size-fits-all. Rehabs are huge headaches, and working with contractors is rarely a treat – it’s a beating! Check out Phil’s video to get an idea of what you’ll be encountering: 7 Things to NEVER say to a Contractor.
We have apprentices that came to us specifically because they were stuck in bad deals. And some are just stuck overall because they don’t know how to recognize good deals, and they keep wasting time on deals that will never work. They come to us to learn:
- How to properly determine value.
- How to assess the condition and arrive at realistic rehab numbers.
- How to be certain the deal they’re pursuing is a good one, that is worth their time, and that they’ll be able to get funding for.
Apply the Best Strategy
However, sometimes funding isn’t the best strategy. We at Freedom Mentor fund deals for our Apprentices, if it’s a really good deal. And that’s one of the keys to having a mentor, even more than just having access to funding, because again, a lender is evaluating to ensure their money is protected. If it’s marginal, they may want more money down from you, or charge more in interest.
But a mentor wants to ensure you’re working on a deal that is going to make YOU a profit, at least if you and your mentor have aligned interests. If one of our apprentices has a deal that doesn’t look strong enough to pursue with hard money, we either renegotiate, or instead pursue the wisest funding there is: No Funding – just flip the property prior to closing! These are the lessons we teach our apprentices every day to ensure their success and profitability.
4 Steps to Funding Your House Flips
If you think you have a good deal, but you’re not finding the funding you need, follow these steps and getting funding will be much easier.
- Know the Value: Make sure you’ve thoroughly reviewed the comps to know the value of the property.
- Know the Expenses: Then dig into the condition to exhaustively know the expenses for the property.
- Know a Good Deal: Only then will you have the data needed to fully evaluate your exit options and be confident you know a good deal.
- Get Funding: Now you’re ready to talk with lenders and find the right fit for you.
That’s right, when you know your values, know your expenses, and most importantly, know how to recognize good deals, getting the money is a lot easier. You’ll literally have multiple options to choose from, and that’s the position you want to be in.
Every Successful House Flipper Has a Mentor
If you’re having trouble mastering these skills, or you’re brand new to them, let us know. We’ve spent 2 decades learning tons of lessons and closing thousands of deals, and we can get you pointed the right direction to make your house flipping dreams a reality. That’s what we do at Freedom Mentor. We mentor and coach people into world class house flipping professionals. Text FREEDOM to 305-315-8030 or apply to our Apprentice Program here: Freedom Mentor Apprentice Program.
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