Looking for Feedback on Financing Strategies for Fix & Flip Deals
Member since 2024 · 95 posts · 56 votes
Hey everyone,
I’m learning more about different funding structures for fix & flip projects and would love to hear from investors who’ve tried multiple lenders.
What do you look for when comparing funding options?
• Points?
• LTV?
• Experience requirements?
• Rehab draws?
Appreciate any insights or lessons from your past deals. Trying to understand what matters most to active investors.
We'll from a lenders perspective, direct and coorispondant broker here, I know general the industry average is 2 points. If the loan amounts dip below generally a $3,000 min compensation point, points go up to meet any specfic lender/broker's minimum comp, the more you close with a lender then better your on-going realtionship will reflect in lower points generally. If you'r using a broker who's always bringing you the most competiive financing they likely will try to keep it at two points "all in". So after direct wholesale cost (from the money, ex. 1 pt) they will originate the loan for you at the standard "2" for 1 pt to their company. Theirs many factors on points and costs though. If your hiugh risk, low fico, no experience, dealing with a PML (Private money lender) I know lenders who before a broker charge 4, 5, 6, 7, 8 , 9, 10 points.... Insane and super usary, but those loans are for the the dirtest of loans, often CLTV where the seller is messing with value and willing to hold paper, the deal seems very funny or what we call "Hairy". Theres alot of variance in the market and it really depends on your unique circumstance, the deal, and the location of the asset.
LTV varries by product and Lender, property and borrower risk, location, and more.
Fix and flips, generally 85% LTC subject to 70% of ARV. Howevere some lenders run LTC as Purchase + Budget, others just the purchase changing intial and total leverage dependant. Others can do 90/100 or 100/100 menaing 100% of purchase up and 100% of rehab, maybe 70-75% of ARV, the 100/100 programs often higher cost, likely 3-4 points +.
Rental LTV, purchase SFR maybe up to 85% LTV, 2-4 unit 80% where other lenders max at 75%. Then you have CLTV, combined Loan to value, where seller holds some paper too. We could lender 70% to you, seller can carry 20% and then its now a 10% down, this program is more expensive. Then on 1-4 unit's I have DSCR / rental programs as low as a 5.25% floor, after margin final sale is 5.99%. So it really depends on the program and lender specifically.
Construstion starting in 8's likely, to the 10% plus on rate (IO), and the LTC generally is 80%, but we do up to 90% LTC with LTAVR 70-75%. Just depends, there's always so much changing in the industry, specific lender guildlines and new products getting onboarded.
Experience: Varries, some work with FTHB (first time home buyers), other's, not. Some need 1 mortgage tradeline in last 24, some 3. Some need one investment expereince, or 3 min, or none, there is so much varriance for these loans theres nothing close to a one size fits all and it realy pays to have someone who understands the investment financing landscape as a whole.
Draws vary in cost and their easy of execution/success varry lender by lender, some lenders have great draw departments, others don't, some charge no draw fees, most don't, the average is $150-$200, and I've seen upwards of $400/per draw. Each product has it's own beneifts and downsides in addition to their draw fees.
In conclusion, What matter's most to active investors really depends on their unique circumstancein that moment for the specific deal in play, but the biggest thing above all else is working with someone they can trust, someone who wont bait and switch on rate or leverage and the BIGGEST FACTOR OF ALL... Someone who can actually close in the time frame that was agreed to (This also requires the investor work to supply all thats needed). I can't tell you how many times I've been ready to close 2 weeks prior to COE, but the investor wants to get me what I've urgently requested "when their ready." I've seen people just create their own hell. It takes one a savy, active and trust worth investor to work with, and then the same of the lender/broker whos working along-side. It's a team effort and those that dont see it, from either side, usually end up with short relaytionships, ill feelings and disappointment.
When I compare flip funding, I stack it into one question: which option gets me to close fast, funds 100% of rehab reliably, and leaves profit after all carry and fees. Points and rate matter, but only as total cost of capital including junk fees and extension fees; I’ll pay a bit more for certainty and speed if the lender actually closes on time . LTV is useful, but don't chase the highest if draws are slow or tight; confirm draw timing, inspections, and whether advances are in arrears so you're not floating rehab on cards for months . Experience requirements vary: hard money often prices by risk and demands more points for newbies, while DSCR and brokered products lean on credit score and LTV more than resume . I prioritize clear terms, fast underwriting, straightforward draws, no surprise fees, and a lender who picks up the phone.