PML Terms / Debt vs Equity

1 Reply

I'm working on an off-market, pre-foreclosure flip and need help structuring the financing.  Facts:

  • $757k purchase price
  • $752k total debt, $260k of which is past-due debt
  • $925k ARV, only needs paint & carpet
  • Gross profit, before the costs of financing, is expected to be $90-$100k.  I hope the flip takes 2-3 months.

I have a few people interested in the deal - now time to talk terms.  Obviously, this is all about what I can negotiate though I'm looking for a fair starting point... and also trying to be mindful that I should take care of the investor.

I'd either need $260k to buy the property subject-to (but risk the bank calling due-on-sale) or I'd need $757k to buy it outright.  I can put some skin in the game... maybe $35k. 

Should I be offering something like 3 points + 12% APR? How would I know if an equity stake made more sense... something like a 60/40 split?

I wouldn't offer the points for a PML. I would offer just the 12% APR.

You can run the numbers if it would make sense for an equity stake. Since you're putting only $35k down it sounds like you'd need someone to come and fund the whole deal. For that you'll need to give the equity investor a large amount of the profits. Probably 80%