What is the best way to find investors for a flip?

Asked by Aaron, San Francisco, CA Thu Apr 10, 2008

I'm a well educated (Ivy League, MBA, etc) potential real estate flipper that has found an excellent opportunity to make some money. I'm quickly putting together a business plan but need to find an investor(s) that wants to go in on this with me. I've heard that finding investors is generally the easy part but do not know where to begin to find investors QUICKLY. Any ideas?

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Don Tepper, Agent, Burke, VA
Thu Apr 10, 2008
BEST ANSWER
Sure. I know many rehabbers who have put together groups of investors.

Before we get to investors, though, you may also want to consider hard money lenders. These are companies (or groups of individuals) who lend based on the equity in the property, rather than on your credit rating or income. The general structure--and it varies a bit in different parts of the country--is that a hard money lender will provide up to 65%-70% of a property's ARV (after repair value) minus any rehab costs. So, consider a house that, after rehabbing, would sell for $500,000. Assume it needs $40,000 in repairs and upgrades. A hard money lender would lend 65%-70% of $500,000 ($325,000-$350,000) minus the $40,000 in rehab costs...or a total of $285,000-$310,000. The going rate for hard money also varies, but is usually in the range of 5 points plus 12% interest. You can get set up with a hard money lender in a few days.

Investors generally will want a 12%-15% return, but won't ask for points. However, different ones will have different criteria about how much they'll lend, for how long, and whether they want to be in first position.

To find investors, make your needs know at your local real estate investment clubs. Here's a link to the ones in California: http://www.creonline.com/real-estate-clubs/ca.html. Attend a few meetings--it'll also give you a lot of good information about real estate investing in general. But most also have an agenda item at the beginning of the meeting for announcements or requests. You'll get plenty of interest.

Another suggestion: As you drive around, look for the "We Buy Houses" signs--often called "bandit signs," they may be put on stakes at intersections or nailed onto trees or telephone poles. In a way, they're your competitors, but they're also your teammates. Talk and network to those people. They'll have sources of money they're using for their purchases.

Slightly longer term, if you can network with groups or individuals who have ample retirement accounts, those are great sources. Some may already have self-directed IRAs. If not, it's easy enough to set one up and transfer funds from another retirement account into a self-directed one. That allows those people to invest that money into your projects. And the groups don't have to be rich. Yes, doctors and dentists are a great source. But I know one investor, a county policeman, who has raised more than $4 million from his fellow officers.

So, that's how you do it.
0 votes
Mike Kelly A…, Agent, Santa Rosa, CA
Thu Apr 10, 2008
Aaron,
We had a lot of "smart money" investors who loaned at 65% Loan to Value who are now running scared!!You might find yourself, in this environment, giving away more than you want to make the deal. Make sure you follow Don's advice below but sharpen your pencil like a razor. You'll be surprised at how fast a fat return can become anorexic
1 vote
Missy, , California
Thu Apr 10, 2008
You could talk to VC's obviously... or incubators... business network groups, investment firms, friends, neighbors, colleagues... Of course, you could put your ass(ets) on the line to fund your projects...

How quickly are you putting together your biz plan? Make sure to not cut any corners... As for the basic feasibility of your business, I wouldn't think that this overall market is a good one for flipping... just a thought. But there are always the niches, so go forth and prosper :)
1 vote
Susan Vander…, Agent, Lake Elsinore, CA
Sun Apr 20, 2008
No doubt that you are brilliant! However, in our current real estate market condition, a lot of people are uncertain and scared. Not to say that investors are scared as well, but I know there are investors who have made lots of money (they are the big-time heavy-hitters that make us look like nobodies.) Investors are still buying -- I know -- I am one and I work with them.

There is a huge world out there when it comes to investing, flips, etc.

Flips, if you've been watching those flipping shows, are overrated and a lot of work. It takes a lot more than just money, advanced degrees, or "connections". It takes experience and know-how, guts and instinct and a great team of knowledgeable people.

Many of the small-time guys are losing their pants, shirts, socks and underwear! I don't know how much funding you are seeking, but flipping in our current Bay Area environment, unless you get it really dirt cheap (and I mean "dirt"), you will probably lose your shirts, pants and who knows what else!

The smart investors are latching onto agents who know the areas and stay loyal to those agents who really know the real estate values and local market conditions. An agent savvy in an area should be able to look at an address and tell you without seeing the house if it's a place worth investing or bidding on at auction or tell you don't bid more than such and such amount or you will be sorry.

I think you need to clarify the objective of your business plan and get it more ironed out before making a proposal to any possible investors. Everyone you talk to could be a potential investor. It's a matter of how you present the opportunity and if that person is really "ready".

Good luck!
0 votes
SFisHome.com, , San Francisco, CA
Wed Apr 16, 2008
Aaron - drop me a line at rob AT sfishome DOT com. I know several money investors in various flip projects in the city who would be happy to get involved in another if it pencils out.
Web Reference:  http://www.SFisHome.com
0 votes
NonRealtor, , 23456
Fri Apr 11, 2008
start looking in Vegas, CA, and FL
these are where you will find the flippers
beware, they may be moody
things aren't looking so good for most of them
real estate is risky business right now
0 votes
Aaron, Home Buyer, San Francisco, CA
Thu Apr 10, 2008
Thanks for the suggestions. At this point, it is a one-off project so it is not at the level of VC firms, investment firms, or incubators. I think this would be ideal for a high networth individual(s) that like to dable in real estate investment (whether or not silently). Craigslist is a good suggestion but I don't know if that attracts serious, high networth individuals looking for a random investment. Worth a shot though.
0 votes
Scott Rose &…, Agent, San Francisco, CA
Thu Apr 10, 2008
Aaron,

I found Craigslist an easy way to connect with serious investors. Just put out some details on your project and see if somebody is interested. You also may want to contact investment clubs.

Good luck.

Tanja Beck with MyTeamSF
Web Reference:  http://www.MyTeamSF.com
0 votes
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