Questions on Financing First Flip or Potential BRRRR

[Nick Gauss]

Hey everyone,

I posted a few weeks back on any suggestions for an aspiring flipper/long term investor. You guys kept me motivated so I've been on the search for deals in my area. I ran across a for sale by owner sign and got to researching that night. The next day I went over and tried calling the number but it was disconnected so I knocked on the door multiple times with no answer. I drove away but then I figured I'd loop back around and try the back door. I was able to get a hold of the owner and get a tour of the home. As I expected from the area/researching the old listings, it needs work but nothing major. I think this could be the perfect first flip or a home that I could utilize the BRRRR method. We spoke at the beginning about what he wanted for purchase price but by the end I was able to talk him down to what I think is a workable number. Needless to say, I may have found my first deal.

I was hoping to get some insight again from the community here on where/what I should do for financing. I am torn on whether or not to utilize the BRRRR method or flip this one. Is this something that a hard money or private loan would be best for as I'm undecided? Then my understanding would be that I would be able to go to a local bank and ask for a cash out refinance after it's renovated/rented if I decide to go this route? Any advice for my situation or general advice for someone just getting started would be greatly appreciated. Thank you in advance!

[Mike Klarman]

If your credit is 700+ and the project cost is sub 70%, you can probably find 85%.

But before I did anything, I'd have whoever is going to do the work do a thorough walkthrough with you and get an itemized budget together.

Then apply this formula:

P = Purchase Price

R = Rehab cost

ARV = After repair value

P + R/ARV < ?

I put a question mark because people put an array of numbers there. Some 75%, some 70%, if you can get under 70% that's best. If you get close to 60% then it's a great deal. Under 60% it's a home run and under 50% is a pure steal. At 75% it can be hit or miss, once you go over that you are on a slippery slope and if your construction runs longer and costs more (which happens A LOT), and then you miss your appraised ARV by 10% - 15% (Which happens A LOT), then you will lose money.