Help me find a solution or give opinions :)

Creative Real Estate Financing
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Help me find a solution or give opinions :)

Andrew Urban
Real Estate Agent · Saunderstown, RI · Member since 2008 · 40 posts · 6 votes

Hello,
I have been a member for a while and have read a number of post which some what relate to my situation, but I wanted to ask for some more advice. I looking to purchase a single family, un-owner occupied, to rehab and flip. I have some funding but will need more in order to secure and flip the property. Here are the details:

House list price: $49,900
Estimated value from Zillow: $160K
Similar homes in the area have sold for $90K- $130K in the last 90 days
Rehab cost: $15K-K20K max
Good thing about area is its in a "revitalization" area which means there are LOTS of first time home buyer intensives from the town and state not to mention the government ones.

I currently own two rental properties which I have owned for around 2yrs each. I still owe to much on the principle to take out any lines of equity so that is out of the question. I have around $10K in the bank I can use along with the two house for collateral and experience.

What is the best way to fund a project like this? Does this project seam like a good deal for those of you reading it? What is the biggest difference between a private money lender and a hard money lender? Would it help to have an end buyer? Also should I have a contractor ready to go one the project with an estimate? Any help you could shed on this project would be much appreciated. Thank you in advance.

Andrew
:help:

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Curt DavisBusiness Member
Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
16y

Here is my .02 Cents:

Whether or not the deal is good or not is really up to you. If your numbers are correct then you might have something. Remember Zillow in nothing accurate.

If you get a private money partner to front the money only, then you can control the deal and once you flip it you split the profit 50/50/

If you find a hard money lender they are going to charge high origination and probably monthly annualized interest that will also be high. With the hard money lender there is a possibility of being foreclosed on if you are never able to sell the home.

With the money partner your risk in minimized and your not paying any monthly interest or origination. See if you can find a money partner first.

Hope that helps you some.

Curt Davis - KAIZEN Realty538 Reviews
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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    16y

    Here is my .02 Cents:

    Whether or not the deal is good or not is really up to you. If your numbers are correct then you might have something. Remember Zillow in nothing accurate.

    If you get a private money partner to front the money only, then you can control the deal and once you flip it you split the profit 50/50/

    If you find a hard money lender they are going to charge high origination and probably monthly annualized interest that will also be high. With the hard money lender there is a possibility of being foreclosed on if you are never able to sell the home.

    With the money partner your risk in minimized and your not paying any monthly interest or origination. See if you can find a money partner first.

    Hope that helps you some.

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
    3Reply
  • Andrew Urban
    OP
    Real Estate Agent · Saunderstown, RI · Member since 2008 · 40 posts · 6 votes
    16y

    Thanks Curt.
    I might have found a private money lender through a commercial real estate friend I have. Wold the private money lender needs any funds or assets from me? Might he be looking for an end buyer or contractor. Also what happens if it take a long time for me to sell the property? Do I need to pay him something each month or does it depend on our terms. Thanks for your help :)

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    16y

    Andrew,

    Usually you will be a 50/50 partner on the deal. You should not have to pay any monthly fee or anything. If they want you to do this then you should get a better deal than 50%.

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
    1Reply
  • Andrew Urban
    OP
    Real Estate Agent · Saunderstown, RI · Member since 2008 · 40 posts · 6 votes
    16y

    Curt thanks for all the great info. I only have $10k to spend so do you think he would be willing to go 80/20 until I build some capital with this and other projects?

    0Reply
  • Shane Bryan
    Real Estate Investor · Fort Collins, CO · Member since 2009 · 45 posts · 7 votes
    16y

    Hi Andrew,

    Holding costs would depend on your agreement with the investor or lender. Be sure to understand the terms as you may end up being responsible for holding cost or any rehab expense overages you might face.

    Also when it comes to the property estimate make sure you get a detailed comp. on the property and then expect to sell it at the lower end of the price range. This might help you sell it faster. The better the price the faster you might see a sell.

    The lender is going to what to know what your projected rehab cost are so having an estimate handy will help.

    Always have an exit plan and a backup plan if that does not work. Expect the best out come but plan for the worst.

    Shane

    (I am not completely aware of your situation so pleases seek advice from someone in your area.)

    1Reply
  • Andrew Urban
    OP
    Real Estate Agent · Saunderstown, RI · Member since 2008 · 40 posts · 6 votes
    16y

    thanks for all the help guys

    0Reply
  • Dory Peters
    Real Estate Investor · dc, Washington D.C. · Member since 2008 · 392 posts · 89 votes
    16y

    You could offer to buy the home with seller financing; ask the seller to subordinate his/her position behind any institutional financing; obtain a hard money loan only for the rehab; and resell retail.

    2Reply
  • George Bloom
    Hard Money Lender · West Palm Beach, FL · Member since 2009 · 181 posts · 29 votes
    16y

    Andrew:

    I would not give away 50% to a private money source. You are going to do all the work from start to finish. I would look at a good seasoned hard money lender who will give you 100% of the cost plus rehab expense. Sure the hard money lender will be expensive, 2-5 points plus an average of 14% interest on the loan. But don't forget that is interest per annum billed monthly as an interest only payment most always. If you turn the deal just right and flip it in nintey to a hundred twenty days you should be able to make a hefty profit based on the numbers you described, and you keep it all.

    I think the most crucial part of doing these types of rehab and flip deals is to make certain that you are on very solid ground in your market value assumptions and also do a very tight estimate of the rehab costs.

    Some of the rehabbers we work with spend most of their time concentrating on these two areas and making sure that they have a good exit strategy.

    If you are comfortable with your assumptions you will make more money with a hard money lender than with private capital.

    0Reply
  • Craig De Borba
    CA · Member since 2009 · 16 posts · 0 votes
    16y

    Hi Andrew,
    I tend to agree with George on this one. However, I have a Private Equity Firm that loans out 70%LTV on the future value.
    And will allow you to establish a line of credit when a relationship is developed, which is really nice. If you find a source like that its a great relationship to have.

    0Reply
  • JP S.
    Real Estate Investor · CA · Member since 2008 · 11 posts · 1 vote
    16y

    General related question--Do hard money lenders exist who will fund 100% of the purchase + rehab (assuming it all totals no more than, say, 65% ARV)? I'm getting a lot of 60% / 40% (lender/me) splits of purchase price.

    Craig, does your firm fund in CA?

    Thnx,
    jp

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Hi, I'm glad to see you getting away from the original thought of 50/50 for the money guy! You mentioned that it's in an economic dev. area, the city should have some funny money for rehab, they may well assist with the purchase on a second, so maybe 60% from your lead lender and the balance for all requirements from the city. This will actuall assist a home buyer getting first time purchase money if the payoff is for city econ. dev. funds which would go back into cirulation for another project. Check with the city. Bill

    2Reply
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