How to fund my first deal?

Question

Hey BP!

I found an off market single family home in my neighborhood. I've spoken to the owner and know her asking price ($75K). It needs a lot of rehab. Probably around $40K. ARV should be around $160K. This home would be a non owner occupied flip. I'm meeting a contractor out there on Thursday to get closer rehab numbers.

I'm trying to figure out how to fund the deal if the stars align. My MIL has set aside about $25K for us, and I have a few more people who are interested in loaning capital (not sure on the amounts just yet). If we can raise enough to pay cash & rehab, how is that drawn up legally? Or even if we just use the $25K from my MIL?

It'd be iffy if the home could qualify for a conventional mortgage considering all the rehab it needs, so I don't think a regular mortgage is in the question. Plus, we haven't had down payment funds in our account long enough to season.

Personally, we have about $12K. No debt other than our personal mortgage. Excellent credit.

Should we look into hard money if we can raise all the capital? Being our first deal, I'm pretty nervous about hard money.

Tanvir Sattar · Answer

@Tabitha Fox The LLC processing time really depends on the state in which you form it in. I'm in Ohio and it usually takes a little over a week. I know some states can take up to 4-6 weeks.

Tabitha Fox · Answer

@Tanvir Sattar okay, I'll look into that. Hopefully it's not as long here. I know the seller has a couple other people interested in the property so I was hoping to do something may be quicker than anybody else can if all my numbers still work after meeting with the contractor on Thursday.

Tanvir Sattar · Answer

If you have a group of investors I would use them. Terms are totally up to you and the investors. You could create an LLC for the property and divide ownership of the LLC by calculating total cash investment by the members.

Tabitha Fox · Answer

Also in the last paragraph that should say if we CAN'T raise all the money should we book into hard money.

Tabitha Fox · Answer

@Tanvir Sattar that's a good idea. Especially since it looks like there may be several different investors. Does creating an LLC take a lot of time?

Tabitha Fox · Answer

@Jeff Copeland I don't think that's an option from the information she was giving me yesterday. It sounds like she has power of attorney over the house because it was a family member's home that died. They saw their lawyer last week to get the go-ahead to sell the house. I will see her on Thursday and I will bring it up and see what she says.

Jeff Copeland · Answer

Have you tried offering seller financing?

How to fund my first deal?

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