what would be the best loan to get on a flip?

Question

I'm doing research on flipping a property. I have the lines of credit to pay for the GC and supplies. My partner and I will probably need to get a loan for about 60 - 70k to buy the home. My question is, what type of loan and from what type of lenders should we look for?

I understand that FHA is out of the question because of their flipping guidelines. From what I've heard conventional would be a good option but we'd like to avoid putting 20% unless necessary.

I was thinking of bringing in a partner that has a paid off home - in order for them to acquire a home equity line of credit.

Your wisdom and advise is greatly appreciated.

-Cheers

Aaron Montague · Answer

@Allan Tamez

Seller financing would probably be the best option.

Barring that, I'd see if your local banks are bundling purchase and construction loans.  That would require 20% most likely however... but maybe not.  Ask around.

You could probably find a private investor willing to put up the cash for 8% preferred return and some portion of the profits.  Ideally they'd put up 90-95% the cash needed for the entire flip, but you seem to have some of your own, so make sure you don't get taken for a ride in that scenario.

Lastly would be the Hard Money Lenders.  They are going to take a huge portion of your profit over a 9 month flip plus another portion up front.  Avoid this route if possible.

Walt Payne · Answer

Most people qualify for some credit union or another. I have found them to be pretty open to various scenarios, as long as it makes good business sense for them. They seem to have less restrictions.

Allan Tamez · Answer

@Mike D'Arrigo  Hey Mike! I realize FHA would be to complicated to even consider for a flip. I'm going with Aaron's advise and try to build relationships with local banks. I have the funds to rehab the property (20 - 45k), I just need the funds to buy the property when the opportunity presents itself.

@Aaron Montague Thanks for the advise on lawyer and accountant. The search is on...

Aaron Montague · Answer

@Allan Tamez

Talk to your accountant and lawyer about the LLC. They can guide you through the creation process for making sure your butt is covered.

Think simple for the business model. If everyone makes money, then all parties are probably going to work together again. A possible strategy is to form separate LLCs for each deal. Ask your legal peps if this makes sense for you.

Check out J Scott's book on flipping. I believe is has a section on the business aspect of flipping. I'm not 100% sure on that.

For your banker(s) I'd start with a price range and get a pre quality letter. This day and age even the pre quality letters are a pain in the paperwork with new bank relationships. I search eternally for the next deal. This is a business that can take months, or minutes, to put a deal together. Make sure your pre quality letter is ready to go in with any offer you want to make.

Mike D'Arrigo · Answer

@Allan Tamez any kind of conventional financing might be out of the question. If it needs a significant amount of rehab, it won't be eligible for financing. FHA is not an option because you can't use FHA for investment property.

Allan Tamez · Answer

@Aaron Montague Thanks for the info. I'll schedule a few meetings with several local banks. Would you recommend I find a property first or pre-game it, let the banker's know my plans and then search for the property?

Do you have any recommendation on a book or website with a good business model for this type of business? Not so much the flipping part but the organizational aspect of the LLC.

@John Marshall Good point. I just mentioned it to a few co-workers and they were anxious to invest. I think building a relationship with a bank would benefit the most thinking with the end in mind. I'd like to pursue higher price point homes and larger margins.

John Marshall · Answer

I agree with Aaron. At that price range you should be able to find a local individual who can do the deal with you. HML at that price range become quite expensive, as they generally need to raise their points and rate to justify the smaller loan amount and/or perceived risk. If you're going to carry the cost of the build, I imagine you'll be able to find some folks to work with.

what would be the best loan to get on a flip?

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