Fix and Flip Escalator: Bigger and Better

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When you use the Fix and Flip Escalator, you’ll quickly realize it’s not magic. It’s SIMPLE math.

This week, let’s use the escalator to see what your money does when you complete four deals per year.

 

Hard Money > Soft Money

Profits increase by­ $12,000

$12,000 x 4 deals = $48,000

 

Hop up another step to bank financing, and this happens:

 

Hard Money  > Banking

Profits increase by $17,000

$17,000 x 4 deals = $68,000

 

Then look at how your profits skyrocket over the course of two years:

Hard Money > Soft Money

$48,000 x 2 years = $96,000

 

Hard Money > Banking

$68,000 x 2 years = $136,000

 

You know what these numbers mean, right? Yes, instead of losing $136,000, you’re making $136,000. That’s money you can reinvest or spend on…anything! Hey, it’s your money. You can do whatever you want with it.

Are you ready to hop on the escalator yet? If so, contact us!

Quick Deal Analyzer

Product Intro: Quick Deal Analyzer

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Introducing the new Quick Deal Analyzer from Hard Money Mike!

With the Quick Deal Analyzer, you’ll be able to find out:

  1. If the estimated profits are in line with your goals.
  2. If the ARV will work for you and your lender.
  3. If the project is worth the effort at the end of the day.

If you’re interested in making more money on your next deal, download the Quick Deal Analyzer here.

Tricks to Get Approved for a Loan

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So, you keep getting turned down for a loan.

As mentioned in a previous post, there’s likely a valid reason. The most logical explanation is a lender doesn’t have the kind of loan you’re looking for. They might only offer loans that include:

  • Lower LTV’s
  • Shorter terms
  • Smaller loan sizes
  • Borrower entity requirements
  • Loans for higher credit scores
  • Loans for those with more experience

Even so, it gets old. So, what are some tricks can you try to avoid hearing, “No,” instead of “Yes”? Here are just a couple:

  • Look for smaller banks in your area. They will charge a little more but don’t mind the churning because they have smaller buckets of money.

With that said, we recommend you always work with one or two small banks because they’ll tighten the money outflow as they fill their buckets up.

  • Look for lenders who like real estate investors. How? Just ask them upfront if they work with fix and flippers before you go through the four-week process of being turned down.

Are you ready to set yourself up for success, rather than failure? Give us a call at 303.539.3000 to get the ball rolling!

Fix and Flip Escalator – A Closer Look

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Let’s continue with the example we used last week and examine the Fix and Flip Escalator a little closer.

As reminder, we used the following scenario to evaluate figures:

You need a loan for $250,000. That covers purchase price and repairs. After 6 months of hard work, you fix the property and sell it for $335,000 (nice job!). Once you take into account all of your holding, closing, and realtor costs, you should walk away with $50,000.

So, now let’s see what happens when you jump from a higher step (i.e. hard money), to a lower step:

When you move from hard money to soft money, you:

  • Make $12,000 more in profits.
  • Drop your monthly payment by $1,100—that’s more money in your pocket!

When you move from hard money to banking, you:

  • Make $17,000 more in profits.
  • Drop your monthly payment by $1,500—again, more money in your pocket.

Are you following along? We hope so, because it’s pretty cool to see how much you can make when you consider the actual math.

Yeah, yeah. We know.

Math.

But it’s worth running some small numbers to see BIG results, right? If you’re ready to tackle the numbers for your project, give us a call.

11 Expert Tips for Flipping Success

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Whether you’re just starting to flip houses or you’ve become an old pro, it never hurts to read about other people’s experiences and learn about tricks of the trade.

11 Expert Tips for Flipping Success

We’ve all seen those “reality” shows on TV, where they showcase a house flipper who makes a ton of mistakes, yet somehow still manages to turn a profit. It makes for nice TV, but it certainly isn’t part of any reality I’ve ever experienced.

Check out this post from Mindy Jensen on Bigger Pockets. She offers 11 expert tips on flipping homes, from beginning to end.

Fix and Flip Escalator – It’s Simple Math

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Okay, now that you get the basic gist of who’s who on the escalator, let’s run through some examples. That way you can see for yourself how moving down the escalator means higher profits and lower costs.

Ready to roll?

Let’s go:

So, you need a loan for $250,000. That covers purchase price and repairs.

After 6 months of hard work, you fix the property and sell it for $335,000 (nice job!).

Once you take into account all of your holding, closing, and realtor costs, you should walk away with $50,000.

 

 

Now, let’s run these numbers down the Fix and Flip Escalator so you can see how your profits drastically vary depending on which step you’re standing on.

Partner/Mentor

Although your partner will take care of the cashflow, they’ll claim at least 50% of the profits. They might even claim the deal as a training fee.

So, instead of walking away with $50,000, you might walk away with $15,000-$25,000.

Yeah, you could do way better.

Hard Money

On average, a hard money lender will charge 4 points and 12% interest (1% a month). They might even deny you the full loan amount you requested—ugh!

Now, instead of $50,000, you’ll be lucky to walk away with $25,000.

That’s better than what you could make with a partner, but still nothing to write home about.

Soft Money

You’ll pay closer to 2 points and 8% interest, but you need to put cash into the deal to get it done—let’s say $40,000. (Just remember, when you put money into the deal, you’ll make more money at the end.)

That means you’ll walk away with $37,000.

Things are starting to look up! Keep going.

Bank Funding

On average, the bank will only charge 1 point and 5.5% interest…and possibly a few other fees.

Like soft money, you need to put money into the deal. In this example, we’ll say $50,000. It’s a large chunk of money, but it’s worth it, because….

You’d walk away from closing with $42,000.

Yippee!

Cash:

You need a lot of cash, and you might have to minimize the number of projects you can take on. But, it pays off because now you’re walking away with $50,000.

Pop that champagne and give yourself a much-deserved toast!

Ready to start making more with your fix and flips? Give us a call and we’ll show you how the escalator works for you.

Why Lenders Turn You Down

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Do you get frustrated by banks and lenders saying no to you?

Do you wonder why they say no, especially when you know others are getting approved for similar loans?

Do you wonder why it’s different with you? Do you think maybe they just don’t like you?

To be frank, they might not like you. But, it’s FAR more likely you get turned down for good, qualified projects because:

  • Banks and lenders don’t sell the same loan products, so they might not have something that matches your needs. Heck, most hard money lenders only have one option, and if you don’t fit their box, it’s a big fat NO!
  • Banks might not like to lend in the fix and flip world.
  • All banks and lenders have their own niches and likes.
  • Banks and Lenders have designated amounts they can lend.
  • Some banks and lenders don’t work with real estate investors. Why? Because they have a lot of money to lend and they don’t like loans that pay off every six months. Instead, they prefer to lend their money, go play golf, and look for a loan again in two to three years.

If you’re tired of hearing “No,” and want to start getting the loans you need, give us a call!

Introducing the Fix and Flip Escalator

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Who would you rather keep your money?

You? Or your banker or lender?

This might seem like a rhetorical question, but it’s not. Believe it or not, many fix and flippers—inadvertently—choose to give their money to bankers and lenders. Sadly, most don’t even know it. Why? Because they don’t fully understand the Fix and Flip Escalator:

The basic goal with the escalator is to move down the steps as fast as you can. Every time you reach the next step, your profits will JUMP!

And you know what that means, right? Yep! More money in your pockets (not a bank or lender’s). And the more money you have, the faster you can flip homes. The faster you flip homes, the faster you can live the life you’ve always dreamed of.

Like, a lot faster!

If you’re ready to get moving, we’re ready to help. Give us a call to chat more about the benefits of the fix and flip escalator.

What is the Fix and Flip Escalator: Terms

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So, we mentioned the Fix and Flipper Escalator, but what IS it?

Today, we’re going to breakdown its terms so you can begin to understand the SIMPLE math behind it.

Ready?

Here we go!

Money Partner

Cost:

Pros: Allows you to work on a project when you have no money, and also learn as you go.

Cons: These arrangements almost always favor the partner/mentor with at least half of the money going to them.

Hard Money

Cost:

Pros: Most hard money loans will fund up to 100% of your project. If you finish your project on time (or ahead of schedule), it’s cheaper than a partner/mentor.

Cons: Charge higher interest rates. If you take longer than planned to finish your project, most (or all) of your profits will vanish.

Soft Money

Cost:

Pros: Comes with lower costs than hard money, and less paperwork and hassles than banks.

Cons: Requires you to put more money and experience into the project. It might also require a better credit score.

Banking

Cost:

Small, local banks (pros and cons):

  • Offer ease and convenience.
  • Might charge a little more than larger banks but they make the process easier.
  • Smaller banks also look at your project history but give you some credit for the projects you’re about to do.

Big, commercial banks (pros and cons):

  • Require all documentation and make the process tougher.
  • If you have all your ducks in a row, they will typically save you money, but most of the time it’s not worth the hassle.

Cash

Cost:

Pros:

  • All of the profits go straight into your pocket
  • No monthly cashflow issues.

Cons:

  • Limits you on the number of projects you can work on (which, honestly, might be a good thing).
  • Eliminates the leverage factor of completing more deals in a year.

Okay, now that you get the basic gist of who’s who on the escalator, we can start introducing some samples.

If you don’t want to wait, give us a call to start chatting about how you can start making, rather than losing money.

Win the Real Estate Finance Game!

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Did you know more than $100,000 is sucked out of your pocket every two years? Yeah, that’s a lot of money—money you could be making rather than losing.

Why is this happening? Simply put, you’re not playing the real estate finance game right. As a fix and flipper, you probably think about projects like this:

You likely spend most of your energy debating whether or not to buy a property, and then creating a budget to maximize the repair WOW! factor. Smart, but that means financing is left for last…and least.

Code red! Code red!

Kidding.

Kind of.

As important as financing is, we get it. Who likes doing math and paperwork? Let’s face it, it’s just easier to assume all loans are identical and it’s perfectly fine to take the same financial path for every project.

…It’s not.

Sorry.

By taking the same path for every project, you risk losing a lot of money. Like, hundreds of thousands of dollars.

So, how do you win the real estate finance game? That’s what Hard Money Mike is all about! We want to help you understand how to increase your profits, lower your cost of funds, and improve your monthly cash flow.

If you’re ready to stop losing and start making, contact us! We’re excited to show you how you can win the real estate finance game.