Kevin Amolsch is an investor and a private lender who has participated in more 1,700 transactions. PineFinancialGroup.com
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Did you know you can make money and still go out of business? Profits are important, but not nearly as important as cash flow — positive cash flow.
Some businesses sell products and services and then get paid on terms. If they have problems collecting, their books will show a profit, but they will not have money to pay their bills. Fix-and-flip investors often run into cash flow issues if there are delays with projects being completed or slow closings. For fix-and-flippers, cash generally comes in only when they sell their flips. If there are delays between closings, this could cause unattended financial pressure. To stay cash flow positive, here are six strategies to consider.
1. Wholesale
If you are out there fixing and flipping houses, you likely come across decent deals that do not meet your criteria. In these cases, consider whether you could sell those to another investor for a small fee. A buy-and-hold investor in the market for more rental homes can probably pay more for a good rental property than a fix-and-flipper would. It is smart for flippers to be on the lookout for other investors to work with.
You can do the work to get the house under contract and flip your contract, or you can simply turn your investor on to the lead and ask for a referral fee. These small fees from time to time can really help increase both your cash flow and your profits.
2. Create Credit Accounts With Venders
Typically, the best prices come with the worst terms. The contractors who get projects done quickly and inexpensively typically want to get paid immediately. I know of contractors who will drive to the owner’s office the very minute they complete a project to collect their payment. If cash flow is not an issue, these contractors could help you get projects done for less, making you more profitable. If cash flow is an issue, though, contractors may create more stress than they are worth.
You might consider hiring contractors who will invoice you and give you 15-30 days to pay. This is especially important as you near the end of the project. It is also smart to buy material for your projects, for multiple reasons: When you buy your own material, you can use credit accounts with suppliers, or you can use credit cards to slow the payments down as you wait for projects to sell. You also ensure the money for your project is going into the project. I have seen contractors collect for material upfront and then go on vacation. Finally, when you buy the material, you receive any associated rebates and credit card rewards, which also could help your cash flow and profits.
3. Partners
Partners can be extremely valuable to investors for multiple reasons. Cash flow is one of the primary reasons I see successful fix-and-flippers use partners — maybe to help with down payments, or for support with the holding costs. You can give up half the deal for this luxury, or any amount you feel is fair, and create a win-win situation. Paying a partner or sharing a deal is a lot better this being broke with bills due.
4. Be The Contractor
I see some real estate investors become licensed contractors. There is some tremendous upside to this if you are willing to do it. First, you can do projects for other investors for fees. If you already have the crews and the systems to rehab houses, why not get paid to help your fellow investors?
You can potentially charge yourself a fee, depending on whether this is allowed by the lender. Some investors set up a separate contractor business and hire themselves to do the job. Their fix-and-flip company hires their general contractor company. This is one way to keep monthly draws coming in to support your cash flow needs. I would caution you to be transparent about this with your lender.
5. Become Your Own Real Estate Agent
Should you, as a real estate investor, get your license? There are a ton of pros and cons to this strategy. Obviously, the biggest pro is that you can earn commissions on houses you buy and sell. That generates much-needed immediate cash. For this reason alone, it is something to consider.
If you are an agent listing and buying houses, you will undoubtedly get leads to list houses and find houses for other buyers. Maybe you don’t want to do that, but do you think those leads have value? Absolutely. You can sell leads, or you can hire assistants or other agents to work them and get paid on the ones that close. Do not overlook this potential revenue source just because you don’t have interest in taking on clients.
6. A Hard Money Loan
It’s probably unsurprising that as a private money lender and owner of a hard lending firm, I believe that hard money is a great way to increase cash flow. I know it sounds crazy because your monthly expense will likely be higher with hard money than other types of financing, but you may find that you’ll put less money down compared to other types of loans. The down payment on homes is the single largest cash outlay for fix-and-flippers, and in fact, many flippers must limit the number of houses they can do simply because of down payment requirements. With a reduced or eliminated down payment, you may find yourself with the cash needed to make the higher payments and still be able to handle issues that come up with your project. Because cash flow accounts for money received and money paid out, hard money can reduce a large expenditure.
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