How Should I Fund Flipping

Question

Looking into starting a career in flipping houses... I know there are many ways to get started but what do you recommend as the best way to fund my new venture?

Chris Martin · Answer

The best way? Get private financing. I fund a local flipper via my self directed IRA (SDIRA) and it's worked out on the deals we've done. Will it be easy to find someone? Not likely. But you asked for the best way, and that's my answer.

David Ashby · Answer

I have not flipped a house but I did sit in on a presentation from a wholesale group called Networth Realty. They essentially find deals, present them to you and then if needed, connect you with a hard money lender. 
The hard money is super expensive and from the presentation I was given, it cut the profit in half (versus paying all cash). So a 190K ARV property purchased at 126K with 20K in repairs left a 45K spread (gross).  After closing from both buy and sell side (purchase and then resell)that takes it down to around 30K potential profit and then insert private money. 4% origination fee, other fees (inspection, survey, etc from hard money lender)  that totaled about 10K ,along with the 12-14% interest payment each month (approximately 1200 per month for 3 months) and you are left with about 14K profit pre-tax. That is if you get the project completed and resold in 3 months, if not then add additional interest payments to eat at your profit.
So in short hard money is expensive but adds risk to your projected profit and sustainability in the form of extended holding cost.  Having said that, for someone getting into their first deal with not a lot of money, it may be worth it.  Keep in mind that this deal required a cash outlay of 25K on my part to get the deal. They do want skin in the game (in my case 13K) and a lot of their fees are due at closing and are not wrapped up into the loan (11K).
There have to be different examples of using hard money, this is based on what I was presented for a flip opportunity but I thought it might give you a rough idea of the hard money aspect, especially for newbies (my rate was higher because it was my first deal with them but they said it would drop after two deals 14% to 10%).
Hope this helps and I'm sure others have better examples. As stated this is what was presented to me and my interpretation of the numbers based on a Q&A with the lender.