Christian Fuentes knows how to climb the investment ladder.
The real estate agent in southern California got tired of watching other investors turn profits on home flipping, so he decided to get in the game himself, even with little money to invest.
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Fuentes, 43, has become so successful at turning the worst house on the block into a beautiful family home that he has his own HGTV show called "Fearless Fix."
"People think that to start investing in real estate, you need a lot of money, but you really don't," he said.
According to Fuentes, you need to know how to spot a good deal, and then find someone with resources who shares your vision.
"Once you can find the deal and understand the formula for making a profit," he said, "you bring a deal to someone like me now, and if it makes sense, I will partner with you."
Reverse engineering a deal
When Fuentes began investing, he was on the other end of that equation: the guy who had a nose for a deal, but no money.
As a young real estate agent he worked with investors, finding them properties to flip. "They were making $50,000 or more in profit," he said, "and I would make my little $5,000 commission." He realized he was doing much of the work, but only getting a tiny portion of the profits.
"If I really wanted to build wealth, then I needed to invest and take some risks," he said. "I needed to go after these projects myself."
Fuentes knew that there were deals to be had at the auctions held regularly on the courthouse steps in towns like Chino and San Bernardino, near where he lived. Knowing that he could make money renovating and reselling these homes, he approached an investor he had worked with, who had an auspicious nickname: Lucky.
"I took Lucky to the auction and showed him what people were buying and what they were making," said Fuentes. "We did the first one together and we did okay."
Not all the deals went as well, but he could see the plan had promise.
Learning how to structure investments
On the winds of his successful flips, Fuentes worked with more investors.
At one point he was investing up to $10 million from more than a dozen investors. The projects ranged from $60,000 bungalows to million-dollar estates.
"I would buy it under their name, and they would get the money afterwords," he said. "I was managing the whole project in between." He started by taking a 25% cut of the profit, then moved up to a 50/50 split, on top of his commissions as the real estate agent on the deal.
But it wasn't long before the headaches began.
On some deals, he barely broke even. Once or twice he even lost money. "And things happen, issues come up," he said. "We had hoarders. Squatters. Vandals. Appliances torn out. Flooding after the house was done."
Plus, now there were too many investors. They were stopping by too often and making too many demands.
That led him to partner with one well-capitalized investor. "That investor just let me use my crew, do our job and we were running like a machine."
He went on the market to buy bank owned or short sale properties. "Cash was not necessary anymore," he said. "We could use a hard money lender. We put 10% down. There is even 100% financing."
Using these kind of high-interest lenders, Fuentes is able to put less down and put more money toward buying properties and renovations. The loans at one time carried interest rates of 12% or 13%, but now because of some new lending options, he says it's more like 8% or 9%.
"Even with hard money, there is a profit."
Building your cash flow
Now Fuentes funds and runs his own real estate investments, flipping about 15 homes a year, in addition to being a real estate agent and owner of three RE/MAX offices.
"It's a good feeling when you get a house that you know is the worst house on the block, where maybe there is a criminal element because it's abandoned," Fuentes said, "and it goes from being the ugliest to the best house in the community."
He knows he's making a difference for the families that live in them and their communities, but he also enjoys giving back by talking to new investors about how to get started in real estate.
"Perhaps your first deal is a 30% cut for you, maybe less," he said, "but you'll learn from the process and you'll make some money. Do that 3, 6, 10, a dozen times, you're going to build your cash flow and eventually you can do it on your own."
But Fuentes said, especially as a new investor, you need to be aware of the market's movements.
"It looks like we're going through a plateau and the market is leveling off," he said. "Prices aren't going up anymore and the market may drop come 2020."
You don't want to get left holding a house when there is a market drop. "We're buying them at 70% of value. If you have a 20% or 10% drop you're not making any money."
He says he plans to keep flipping for the next six months, then re-evaluate in mid-2019.