Curious to learn insider advice and valuable insights on rehabbing properties, private lending, and the outlook of real estate investment in Texas?
Watch this video of a podcast interview with Longleaf Lending’s Managing Partner and co-founder, Pete Underwood. Pete has over 14 years of experience in real estate investment and over the past four years, he has executed on 150+ properties in Texas with more than $50M total value.
The podcast interview with Flip Texas starts with two important advice that Pete shared when it comes to rehabbing properties: costly mistakes to avoid as a new real estate investor.
According to Pete, he often sees these two mistakes with Fix and Flip projects and wishes to share these advice with beginner real estate investors.
2 Biggest Mistakes of Flippers
Mistake #1: Bad Partnerships
In rehabbing or Fix and Flip projects, in many cases there is a financial partner and an operating partner. The financial partner puts up the capital and gets x percent of the return while the operating partner does the work and also gets x percent.
The problem arises when these partnerships are not well-defined. There are partnerships that are merely oral or “handshake agreements”.
Without proper protections and a thoroughly defined list of responsibilities, the partnerships will not be successful and could result to redundant efforts, passing of responsibilities, and other issues that could result to time delays. And in real estate investing, time is the enemy of this business.
Before entering a partnership, ask yourself these questions:
- What happens if things go bad?
- What are the penalties for each erring party?
How to avoid encountering this mistake:
Here are two things Pete mentioned in the interview on how you can avoid this costly mistake.
- Conduct due diligence on the financial partner. Does he have enough liquidity to use as cushion to fund the rehab before the funding from the lender comes in?
- Prepare and sign a joint venture agreement that protects both parties in any possible eventualities. This is regardless of whether both parties are close friends, family, or relatives. With handshake agreements, you cannot resolve issues in court or sue for breach of contract.
Mistake #2: Stepping up in value
As advised by Pete in the Podcast interview, for new flippers, start with the easy rehab first before working your way up tp more complex projects.
One key example here is not to go into luxury projects unless you have a lot of the following:
- Construction background
Some new flippers make the mistake of taking in luxury projects (currently at the 750k-1M range) and this turns out to be a very costly mistake.
Pete advises real estate investors who are still starting out to start at the 300k range (average home price now in Houston is 400k) and take on projects that are more on cosmetic repairs only.
“Stay away from projects that require moving walls, big foundation issues, redoing wiring, electrical, plumbing, removing drywall, redoing insulation, etc. All these things play into other contractors’ works and becomes a more complex job that requires a lot of coordination. There is a high chance that your budget may blow through the roof,” Pete says.
“Don’t go for the home run the first time. Learn the business first before you step it up.”
Watch the Full Interview Here
There is a lot more you can learn from the interview with Peter Underwood for the Flip Texas Podcast. See below the full video of the interview.
Need funds for an upcoming rehab project in Texas? Talk to us at Longleaf Lending and we will be happy to help!
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