I am starting out in flipping homes. My wife and I are a real estate team currently and we are excited to make this next move. What are our options for obtaining financing for flips if we are operating under an LLC? Are private investors a good/bad idea and what type of percentage return would be considered standard or acceptable to a private investor? Considering a 6 month flip period as an example, would a 10% return to the investor be taking too much from my profit or right in line with what it would cost for us to use a loan from a lending institute?
1. Probably the best investment you can make is to Make your profile stand out here on Bigger Pockets
2. Include your company info on this site
3. Name, number, website
4. Let people know what your are looking for (call to action)
5. Network locally at local REIA clubs and ask around. Flipping is a great way to go. Private money has alot more flexiblilty so you could go that route. A 10% return is solid. Many people have money tied up in investments that make alot less than that.
Financing options for flips
1. Private Money
2. Conventional financing
3. Hard Money
4. Family and friends who wish for a higher return than what they are getting now
Make sure the money and fees is not too expensive (Hard Money) if it is, just rework your number to make it attractive to your money investors
The 10% return you reference is a reasonable return to use in your proforma and in your negotiations as a first time investor. I have been financing investment properties for over 15 years and most private money lenders are looking for a return on their money in the 10-15% range over the course of a year. Hard money lenders typically have a higher IRR (internal rate of return) target of 15-20% annually. IRRs typically include any origination fees, interest and exit fees on a loan. Private lenders can be more flexible to work with and close quicker than conventional lenders. If you can find a conventional lender for your deal, their rates will be much lower than a private lender. Currently conventional rates are in the 4.0% to 6.0% range with 1-2 pts origination fee.
I see more loans to LLCs than individuals on investment property primarily as a way to limit personal liability exposure. This also helps separate problems on other properties or personally from operations of the LLC.
Would suggest you find an attorney and CPA to bring on as part of your team. Good advisors are worth their cost on the front end. Remember, your first deal is your most important deal, so make it a successful one!
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