If you’ve ever flipped a home, you know that time is crucial. Often times, it makes all the difference between a successful and an unsuccessful fix and flip deal. Closing fast really is the “name of the game” for deals. Below are some of the typical challenges investors come across that can hinder rehab investment deals.
Below are some common challenges investors may encounter that often delay their deals:
- Finding a good property to purchase
Finding a real estate property is the first stage in completing a fix and flip deal, and it can be quite a lengthy process. Although there are many properties on the market, not all of them are necessarily good deals. You can find good real estate deals by creating strategic partnerships. By creating these types of partnerships, you’ll have access to great fix and flip deals before they even hit the market. Some of these partnerships might include those with real estate agents who have impactful relationships within the community, or even those with bank asset disposition managers.
- Getting under contract
The competition for good deals is strong and there are many inexperienced investors who are willing to overpay in order to win deals. You can speed up the process by making your offer more attractive, without having to offer the highest bid. By working with a private or hard money lender, you can offer the seller all cash. “If I’m in a situation where there are multiple offers and I am not providing the highest offer, I am providing an all-cash transaction, a very quick closing, or I’m waving contingencies. I’m winning out because my terms and my speed are more attractive to the seller,” says Don Wenner, CEO of DLP Real Estate Capital. Sellers are often willing to forego more money in exchange for better terms.
- Securing financing to purchase the property
Obtaining financing from lenders can often take several weeks. In order to get financing from a lender, you need to have several things set up in advance, like entity documents, track record, liquidity proof, tax returns, etc. You can accelerate the financing process by taking note of all the required document list early on. Get a hold of every item your lender is requiring as soon as possible and send to your lender. The sooner they have everything they need, the faster financing process will be.
- Having a business entity/LLC
Most lenders will require you to form a business entity in order to purchase, renovate, and sell the property. Depending on the state you’re located in, it can take weeks to get an entity set up. Make sure you have an entity ready to go in order to save time and secure your deal. You can use state websites or other national third-party websites (such as legalzoom.com or incfile.com) to set up your entity and receive the appropriate proof your lender is requiring.
- Being able to provide evidence of sufficient liquidity
Most lenders will not lend investors 100% of the funds needed to purchase and renovate the property. You will need to provide proof of having your “skin in the game” before they will finance your deal. To speed things up, make sure you have bank statements, brokerage, or IRA statements are prepared in advance.
- Having a clear scope of work for the project
Your lender will want to see that you have a clear plan in place as to how you will renovate and increase the value of the property. Having a clear business strategy upfront and early on will prevent you from slowing down the financing process with your lender.
- Waiting for the appraisal/inspection/title work to come in
Often, investors struggle with waiting on third party items to come in, even after they already have everything in place and are working with a lender. The most common items investors are usually waiting on are the appraisals, which can take about 2-3 weeks to come in. Work with your lender to have them order the appraisal and inspection as soon as possible. Make sure the title work is ordered at the very beginning of the process as well. At DLP Direct Lending Partners™, we don’t ask for the appraisal until after closing. This helps us avoid any potential delays in closing.
As a real estate investor, one of your primary goals is securing the best real estate deals. In order to obtain those lucrative deals, offering fast closings will truly be your secret weapon. You must have the confidence and the ability to offer sellers 10 to 20-day closings, in many cases, without contingencies and non-refundable deposits.
Looking for a partner in your real estate investments? DLP Direct Lending Partners has the experience in flipping our own deals and funding many more. If you’re ready to explore working with a lending partner who has the experience and capital to help you fund your deals, we invite you to set-up a no-obligation discovery call by clicking here