Tag Archive for: fix and hold
Fix and Flip Escalator – A Closer Look
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
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.
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
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.
What’s Your 2-Year Plan?
Close your eyes. Clear your mind. Take a deep breath.
Now, let’s pretend we’re talking to each other two years from now. What happened during that time period that made you proud and put a smile on your face? How does your cash flow look? What kind of work schedule do you have? How does life look for you and your family?
When it comes to investing, we have discovered that thinking ahead two years leads to the most success. Why two years? Well, it’s short enough to imagine without being overwhelming, and it’s long enough to create tangible, positive change in your life.
Coming up with a plan is as easy as one, two, three:
Step 1: Imagine where you want to be in two years.
Step 2: Evaluate where you’re starting at today.
Step 3: Create a plan that connects your current reality to your future dreams.
How do you formulate an actual plan? Well, that’s what our team is here to help you do. It’s just a matter of picking up the phone and giving us a call to chat.
One conversation can change your future…and your life!
Win the Real Estate Finance Game!
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.