Rehab budgets are almost always overrun. Schedules are almost always blown. But if you are pessimistic in your planning, you may not blow out your budget and schedule too too horribly.
Here's an example showing how you can "chain your loans" to provide the down payments for a chain of future deals.
Bob buys a house for $70K with the intention to fix and flip it. He plans on putting $40K into the rehab and selling it for $200K. His realtor did a CMA (comparative market analysis) on the house and determined that $200K was a reasonable sale price. We call that $200K the "ARV" or "after repair value".
Stocks are currently hugely overpriced by historical standards. Dividends are near all-time lows. The volatility of the stock market is scary. Residential real estate promises lower risk (people have to live somewhere) and higher returns.
95% of the problems that landlords have is due to poor (or no) tenant screening processes. The landlords who do good, thorough tenant screening are not the burnt out, bitter ones. They are the ones who are always smiling. Here is a link to a fantastic Bigger Pockets blog post called "The Ultimate Guide to Screening Tenants": http://www.biggerpockets.com/renewsblog/2013/01/27/tenant-screening/.
A few years ago there was a foreclosure auction in my neighborhood. I walked over there with my wife and my dog just to see how it was going. As the bidding progressed, one of the auctioneers pointed to me as if accepting a bid. I looked around, wondering if maybe he had been pointing to someone behind me. I shrugged and put my hands in my pockets so that the auctioneer could not possibly think that I was bidding. Then it happened again! I folded my arms across my chest and avoided all eye contact with the auctioneer.
You're all familiar with the stereotype of an anal-retentive engineer. Well, I'm here to tell you the stereotype is correct. I know this because I am an engineer by education and long practice, despite being also the owner of New Hampshire Private Lending. In social situations this obsessive attention to detail is just plain embarrassing (more to my wife than me, as I am somewhat socially obtuse). However, it is of enormous benefit for planning monthly cash flow for a flip and estimating profit.
Most of my customers are real estate investors in New Hampshire who borrow money from private lenders like me to buy distressed properties, rehab them, then sell them for a profit as quickly as possible. We call those customers "flippers" because they "flip" properties. A flipper called me the other day about a hard money loan on a condo that he was considering purchasing for a flip. As he was describing this small condo complex, I realized that it was a "non-warrantable" complex.
In early October 2014 former federal reserve bank chairman Ben Bernanke revealed that he had been turned down for a refinance of his home mortgage loan. His previous salary as head of the Federal Reserve bank was in the neighborhood of $200,000 annually and he reportedly earned $250,000 for his first speaking engagement after stepping down as chairman of the Federal Reserve and had also reportedly received one million dollars to write his memoirs.
Folks, We are a private lender in New Hampshire, mainly for residential flips, and we have to turn away a large number of applicants because they don't have the upfront cash to qualify for our loans. We require them to have substantial skin in the game because we don't want to assume all the risk of their projects. We require a 35% (that's 35% of the purchase price) down payment and we also require that the borrower have enough cash reserves to get them through the project.