Upscaling from flipper to developer in the lucrative California real estate market is more achievable than you might think.
You might be flipping two or three single-family homes per year and are making a comfortable living.
But are you satisfied or do you crave to unlock the massive wealth-building opportunities that California real estate offers?
As a successful flipper, you already have many have the tools and basic practices needed to grow your business.
While multi-unit properties and commercial developments are bigger investments and take more time to bare fruit, they offer higher potential for cash flow and appreciation.
That results in bigger profits and more substantial long term wealth.
By leveraging hard money loans to fuel your growth, you can fast track your wealth creation goals and set yourself and your family up for life.
Here’s how to do it.
Build your knowledge and skill set
A little research and preparation goes a long way.
If you are going to morph from flipper to developer, you need an intimate knowledge of the basics of development.
You’ll need to make yourself familiar with California’s zoning laws, permits and building codes.
It’s a good idea to take a real estate course or read books like Real Estate Development Principles and Process by Miles, Netherton and Schmitz.
Gaining a real estate licence is also a worthy exercise because it gives you access to even more properties and takes a middle man out of the equation.
Attend industry events and start networking with professionals such as architects, contractors and city planners to make key contacts as you begin your journey.
Having these relationships is imperative if you want to scale your business because it puts you at the head of the queue when new properties become available.
Utilise the power of hard money
Hard money is the perfect solution for flippers and developers for projects of all sizes.
It is particularly suited to the complexities associated with larger projects for the following reasons:
Speed of funding – can be approved in 7-10 days which is critical to avoid missing out on opportunities in California’s competitive real estate market
Ease of finance – applications are assessedbased on the property’s potential or ARV (After Repair Value) rather than the borrower’s credit history, allowing for the approval of even unconventional or high-risk projects
Flexible terms – between 6-24 months align with the timelines of development projects, allowing for the sale of the property or refinancing with conventional lenders
Scalability – scope for more bigger loans with up to 75% of ARV as your aspirations and developments grow
No prepayment penalties – many hard money lenders allow early repayment of the loan without penalty
The development process
The path from flipper to developer may look steep but it’s easier than you might think.
That’s because many of the skills acquired as a flipper can be utilized as your role segues into one as a developer.
It merely requires applying those skills on a grander scale.
Those skills include:
- property identification and acquisition
- feasibility studies including analyzing costs, timelines and potential ROI (Return on Investment)
- working with architects to design renovations and secure necessary approvals
- managing the building process during construction
- renting out the completed units or selling the project to discharge the hard money loan
Risk management
Real estate development can be a risky business.
The most common risks are construction delays, budget overruns and market fluctuations.
They can all eat into your profit margins and sometimes worse.
To reduce the risk of financial disasters:
- conduct thorough due diligence before purchasing property, examining local market trends
- secure pre-leases or pre-sales to ensure cash flow
- build a 10-20% contingency fund into your budget
Assemble your team
As your ambition and prowess as a developer grows, you’ll need to assemble a team of reliable professionals to work with you.
Development projects require many tasks that are complex and require specialized expertise.
Your own team will prioritize your projects, minimizing risks and ensuring completion on time.
You will need:
Architect – to design projects and satisfy local regulations
General contractor – to manage construction and timelines on site
Project manager – to oversee budgets, permits and schedules
Real estate attorney – to handle all legal and contractual matters
Hard money lender – a trusted lender in your corner to finance your projects
Start with multi-unit properties
Don’t bite off more than you can chew straight up.
Start small by redeveloping some multi-unit properties before working your way towards bigger projects.
Multi-unit properties are easier to manage than commercial properties and remain in high demand due to the housing shortage in California.
They also provide steady cash flow while you gain valuable experience for larger-scale projects.
For instance, by purchasing a $1 million duplex and taking out a hard money loan to finance renovations, you could rent out the units for $3000/month each, generating $72,000 per annum gross income.
Scale up to commercial or mixed-use developments
Once you have mastered the redevelopment of multi-unit properties, harness the talents of your team to scale up to commercial and mixed-use developments.
Commercial properties offer higher profit margins and long-term cash flow while California’s multitude of urban areas are ideal for mixed-use (residential and retail) projects.
A mixed-use building with 20 residential units and five retail spaces could generate more than $1,000,000/year in rent.
Leverage your success for future projects
This is where you really capitalize on your achievements.
By reinvesting your profits and borrowing greater sums of hard money to fund even larger-scale projects, you grow your business and lay the foundations for a lifetime of success and prosperity.
You further strengthen the already solid relationships you have forged with industry professionals contractors, local politicians and hard money lenders to become a leading player in a city’s building landscape.
Get advice today
If you are dreaming big and interested in making the jump from flipper to developer, there’s a lot to consider.
Knowing exactly where to find professional advice and support tailored to your specific goals can be overwhelming.
But you need look no further.
Here at Equidy, we make it our business to turn property dreams into reality and we strive to do it every single day.
Equidy has an intimate and personal history with property and has covered all aspects of real estate and property development in California for more than 40 years.
We are ideally placed to advise experienced flippers on how to transition into successful real estate developers in California.
We work creatively with our clients every step of the way, sharing our wealth of knowledge and vast networks as our clients’ projects begin to take shape.
Equidy is also a hard money lender with one of the most respected and enviable reputations on the west coast.
We have a comprehensive knowledge of the business and strive to provide hard money solutions for every circumstance.
We are bullish about our core belief that anything is possible.
Even in tough economic times, we strive to reward entrepreneurship and always help our clients realize their wealth creation dreams.
Equidy enjoys long and established relationships with serious investors, sellers and real estate professionals while leveraging our reputation and trust, using clear communication to minimise the risk to all parties.
Contact Equidy today to book your free strategy call.
