Best Way To Finance A Deal

[Saraan A.]

Hello Everyone! I apologize ahead of time for the long post.

I am a complete newbie so please bear with me. I would like to begin property rehabbing and flipping. I have been reading the BP forums, listening to the BP Podcasts, and I am reading J Scott's The Book on Flipping Houses. I also attended my first REIA meeting last month. I have a contractor that is willing to work with me when I start viewing properties. I am hoping to next find a realtor that is investor friendly.

I am trying to understand the best way to finance a deal. I have about $15,000 cash saved up and just opened a $20,000 personal line of credit with my credit union. The rate is 8% and will require a minimum payment of 2.5% of the outstanding balance. I have approximately $45,000 of available credit in credit cards. I am a little hesitant of maxing out credit cards because of the potential hit to my credit score. 

I was approved for the line of credit today and it hasn't hit my credit report yet. Should I attempt to open a couple of more lines with other banks so that I have more available credit to me or would that not work or be advisable?

I am trying to determine if I am a good candidate for a hard money loan. If I am, how would they structure a deal? Do they finance the full amount including repairs and use my cash and personal line as collateral for the loan? Or do they lend a percentage and I fund the rest? Would there be a better strategy for financing that I should consider? Thank you for any help you can provide!

[Andrew Postell]

@Saraan A. lots of good questions here.  The basic premise is that a Hard Money Lender will like to see your qualifications but they are also very focused on the property/deal itself.  Sometimes they are willing to overlook something if the deal is a good one.  Most will likely lend about 70% of the After Repair Value and that's the number that a lot of investors use when analyzing properties.  At 70%-75% you still have enough profit in play to pay out realtors, title, etc. and still make good money.  So your purchase price + repairs should be somewhere around those numbers.  Based on what you stated above it seems you would be a good candidate for a Hard Money Lender.  I would certainly continue to meet at your investor networking group.  Speak with other experienced investors and find out who the good hard money lenders are in your area.  A good lender is a partner with you in a way.  They should be able to listen to your needs and concerns and guide you in the proper direction to be profitable.  It certainly sounds like you have a great plan already and just stick to Warren Buffets #1 rule to investing - NEVER LOSE MONEY.  I think he's a pretty smart guy to listen to.  Good luck!