How much out of pocket money to buy a house?

Question

Hi everyone I'd like to start by apologizing if this gets a little long but I'll defenetly deeply apreciate any comments and inputs you can give.....

I'm extremely new to real estate investing so new that i have yet to purchase my first propert to flip. I've been doing a lot of research online specially here, BiggerPockets is insanely packed with all sorts of wonderful information. But from you guys that have actually done closings here is my question (finally).... How much out of pocket money would i need to purcahse lets say a $200k property? I sort of have a hard money lender that told me as long as i can "show" that i have 20 or 30 % of the value and of course the deal has to make since, that they will loan 75% on the ARV so saying that i get the property plus the rehab cost still while still under their 75% meaning no money out of my pocket for the actual loan and rehab. What are the actual cost that are inevitable coming out of my pocket. I have a friend thats whilling to put in the "show and tell" money
(20-30%) which like they told me as long as the house with the rehab cost stays under the 75% arv they are loaning my friends 20-30 dont get touched hance "show and tell" money. But i know that theres appreiser fee, insurance fee, closing fee i belive thats out of pocket right? And im guessing a few more fees I'm missing. Please any information will help me I'm looking at some properties and dont want to realize i couldn't do it at the last minute. Sorry for the long article/question.

Thank you all in advance.

Pablo Hernandez · Answer

Thank you i really appreciate all the input. It helps a lot just having someone tell you its possible and offer any kind of help. It's defenetly overwhelming specially for someone with 0 buying and flipping experience. Not knowing with what obstacle I'll be hit with next, and the more research i do, speaking to hard money lenders, online reading, and videos just to name a few the further it sort of feels of actually getting a flip done all because of the out of pocket money. I know its basically the most important part. The lender I've spoken to i found here on BP I've also spoken to a couple more I've found online. The investor that's putting the 30-40% is a good friend of mine. I guess I'll talk to him see if he can stretch the loan a little more for the closing cost. Also talk to the hml and see if the rehab money is up front or like you guys mentioned which i had no idea, given afterwards or after completing some of the rehab out of pocket. Maybe the fact that i'll be saving a lot of money on rehab since I'll be doing all the work between me and my dad who like i mentioned is a contractor, maybe my friend wont mind putting up the rest. I know these are all rookie and inexperience moves, but gotta start somewhere when your funds are as limited as mines are. Once again thank you guys. I really do appreciate all the info.

Tom S. · Answer

@Pablo Hernandez  Showing you the numbers on the cheapest buy and rehab I did.

$50k purchase, 20% down = $10k.

closing costs = $2500

Utility deposits = $250

Rehab = $25k

So $37,750 cash.

I was reimbursed on the rehab but only after I completed the work first and it was inspected.  Note it can be done with some credit (charge the materials), but you will need access to cash or credit to get the work done.

Finally, monthly payments of $550.

Hope that helps outline it with real numbers.

- Tom

Kurt K. · Answer

Another option is purchase a property that you can house hack. A duplex that you and your dad could flip, then you could live in one of the units. Some sweat equity goes a long wayl. Live in it for two years, then repeat or reinvest.

I realize this doesn't fix your no cash solution, but it would be a goal that you could work towards. It seems a lot of investors started out this way.

George Despotopoulos · Answer

Hi @Pablo Hernandez all good, it seems simple from the outside, and then you get working and there are so many variables. It can be overwhelming. You'll definitely need to struggle through everything until you have a firm grasp. Keep asking questions and do some reading, listen to some podcasts. Although, listen to the right podcasts would be more appropriate advice. I've heard too many success stories on 1.5 hour podcasts. You get sucked into thinking it's easy work or simple.

I can only speak to my experiences and practices. Usually we speak in terms of LTV not ARV, especially with a new investor to fix & flip, I really would not take the ARV. This is because you're new and no matter how much research you've done, talking to tradesman and industry insiders, tv shows you've watched, etc., when it's time to put it all together it will be on you. Everyone is busy, including mentors, unless they have equity/capital at stake.

Is the lender you're using a reputable company? Is it a friend or someone referred? Or did you just happen to find them through an online search.

I ask because when I speak to new investors I like to walk them through our whole process. I explain to them the fees generally expected for closing in the property's locale. This includes closing costs, appraisal fee, our origination fee.

Usually on hard money, it's 75% LTV, this is my experience only and others may differ, especially since some cover the rehab. Note, the money for rehab isn't given upfront, usually it's after a certain time-period or scope of work is completed and all invoices/receipts are submitted to the lender for their approval and disbursement.

I would try to look up a local real estate investors group to join or attend a meeting, also look up investors on biggerpockets from your area of investing, talk to them about the various fees with a lender as well with investment property ownership. Also, perhaps touch base with appraisers in your area to get a quote and perhaps speak to some title companies near you and/or the property you're investing in. I've never done this, so take it for what it's worth, perhaps they will be happy to lend some advice and give you cost estimates. At the very least I know title company some time put on seminars and workshops, ask/email around for some of those to attend too.

For your first flip I would start small if possible. Do not overextend yourself and struggle to buy a property where all your cash, or most of it, is going to the down-payment. You need the experience to help you not only with subsequent deals but obtain better rates. The more successful flips under your belt the better terms you'll be seeing from lenders.

Feel free to reply or reach out directly through a private message or at the below contact info.

Pablo Hernandez · Answer

Thank you for the reply. Sorry I just have so much I want to ask that I guess I rant more than anything else. I get that the hard money lender will only lend on a deal that makes sense, I guess what im asking is fast fowarding to the somewhat obvious steps, finding the house getting it under contract, having the 20-30% "show" money. How much will my out of pocket expenses be more or less? Sorry for this quick rant I'm about to do I just want to sort of explain the "show" money part. I spoke to the hard money lender and I was told that they lend 75% ARV. So as long as the purchase of the house and the rehab cost are less than the 75% they are covering, that my 20-30% was just for them to see I actually do have some capital. But I'm concerned about all the steps before the actual closing and the closing. Getting it appraised, inspections, insurance, closing cost and so on.

Brandon Sturgill · Answer

@Pablo Hernandez not trying to be an asshole, but you are all over the place. You need some more solid information and a property in contract that makes sense for a private lender to even think about lending you money...if you bring what you have to a lender, the only reason they would lend to you is to foreclose on the property when you can't perform.

You need to be solid on your acquisition and after repair value costs. Hard money lenders are savvy and will likely get you funded if you have a stellar deal in contract...but the deal must make sense to seasoned investors.

If you have some more details I would be glad to assist where I can...

Why are you using hard money?...do you not have any other resources?...and what are you going to do with this property?

What is your plan?