Windsor, CT · Member since 2017 · 18 posts · 5 votes
Hi! I know this may sound like a complete newbie question but I really need help. I want to ‘fix and flip' a property but I'm not sure what borrowing route is the best to take. My credit isn't that great, and my brother is willing to co-sign a loan with me however, all the hard money lenders I speak with don't lend to individuals, only LLC's. Is there any way to get around this? Possibly with another type of loan program? I know of 203k loan but if I'm not mistaken those types of loans require the owner to occupy the property for a period of time which I would not want to do. Lastly, If the lender requires a down payment would it be wise to borrow the money for the down payment in addition to the loan for the property?
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
8y
What is important to understand is that a lender is looking at their "risk". They want to be paid back for their loan. They are looking at the property (size of home, parcel, location, value, etc.) and they are looking at the borrower (experience, credit, ability to do the work necessary, etc.) What you lack in one area must be shored up in another. If you are strong enough financially a lender will be more flexible on the experience, etc.
Experience has everything to do with being able to a property that has a big enough profit margin to be able to pay a hard money lender. Those types of deals take work to locate.
I'm not saying it can't be done, only that it's good to understand what it is you are bringing to the table, and strengthen what is weak. Good luck.
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
8y
What is important to understand is that a lender is looking at their "risk". They want to be paid back for their loan. They are looking at the property (size of home, parcel, location, value, etc.) and they are looking at the borrower (experience, credit, ability to do the work necessary, etc.) What you lack in one area must be shored up in another. If you are strong enough financially a lender will be more flexible on the experience, etc.
Experience has everything to do with being able to a property that has a big enough profit margin to be able to pay a hard money lender. Those types of deals take work to locate.
I'm not saying it can't be done, only that it's good to understand what it is you are bringing to the table, and strengthen what is weak. Good luck.
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
8y
Have you looked into starting an llc? I had one in CT years ago, it was fairly cheap and very easy to do. Just pay attention to dissolution and what the costs will be (I got hit with a bill years after, and found out it was legitimate).
Real Estate Broker · Granby, CT · Member since 2015 · 694 posts · 317 votes
8y
@Kadisha Ledford, if the deal is good enough, and you have the ability to attach multiple people (ie your brother) a decent HML will do the deal as long as you have the standard amount in the game. 25-35% of purchase price. If you have any questions or would like to get my thoughts, feel free to contact me. I am pretty well-versed in values and ARV's in this area.
Windsor, CT · Member since 2017 · 18 posts · 5 votes
8y
Hi @Karen Margrave thanks for that. I can understand why a lender would be hesitant to lend to a novice. I can also understand why they would require all that they would require. Nonetheless, I do believe that there is a way to get this done in a way that suits my situation, that is reasonable, realistic for me, and that will give me the end result that I am planning for. I do know that with this being my first rehab,it’s a gamble. However, you can’t gain experience if you don’t make that leap. I don’t know if you can learn from others experience without having experienced it for yourself. You can prepare and be aware but idk if you can learn and understand ( I’m sure other people disagree lol). I will most certainly take precautions during this whole process and try my best to cover my bases by continuing to ask the necessary questions. Thank you so much Karen !!
Windsor, CT · Member since 2017 · 18 posts · 5 votes
8y
@Brian
@Brian Pulaski, I have looked into getting an LLC. My reservations with this is the fact that it can take som time, from my understanding (I could be wrong). Ive read that you can get one on Legalzoom.com but I'm not sure how legit that is. In your opinion Do you think Lefalzoom.com would be a legitimate way to form an LLC or should I just go through an attorney? Also, something else that's a roadblock is that if I do decide to go th HML route, then my brother would have to be a partner in order to co-sign the HML (again, I could be wrong). Dissolution? Honestly, I've never heard of that and have never seen it mentioned in the forums that I've read. That's great advice and it gives me something else to read up on! Thank you !!
Windsor, CT · Member since 2017 · 18 posts · 5 votes
8y
@Rick Santasiere That sounds great! It would be nice to pick the brain of someone who knows my area and understands more about ‘fix and flips’ than just the idea. Thank you so much!
Windsor, CT · Member since 2017 · 18 posts · 5 votes
8y
@Christi Hawkins I don't believe so, at least not with the HML's that I've spoken with. I was informed that they will only lend to someone who has an LLC already established. I'm guessing for liability purposes. I'm sure someone will correct us if we're wrong. Lol.
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
8y
@Kadisha Ledford I formed my LLC in CT back 4 years ago or so. I actually did it to sell boats (for others) for a short period of time. I don't recall it taking more time than what it took to fill out the forms. I wish I could remember what website I use to form it, but my attorney didn't need to be involved. If you have an attorney you can discuss with, reaching out quickly might be a good starting point.
Dissolution is when you dissolve or end the LLC. For mine I only did it for a short period of time (side job, but with a new baby and then another coming it turned into more work than it was worth) so after a while I dissolved it. A year and a half later I got a $250 bill and thought I had been done with the LLC. It turned out the dates I dissolved pushed me into requiring to pay that addition amount. Not something to worry about assuming you run with it and keep the LLC going.
Wish I remembered more of the specifics, but I do remember forming one was very simple.
Investor · Stevens Point, WI · Member since 2017 · 77 posts · 31 votes
8y
In most states, forming an LLC is a very simple process. I formed one here in Wisconsin in about 3 days. I'd google "how to form an LLC in (your state)"; you should get some good info that way.
For your first deal, if you are convinced that you have a really good deal, consider finding a local experienced flipper or GC who could partner with you, bring the down payment and help run the process. You might be able to split the profits 50/50, or they might require more, but honestly, it's still a great way to get that on your resume, which is often more important than making a ton of money on your first one.
Windsor, CT · Member since 2017 · 18 posts · 5 votes
8y
@Samuel Bavido that is definitely something I haven’t considered and a very good idea. The money is important but I’m more interested in the experience and understanding the process.
for my first flip, a HML funded me, no LLC. But I did have cash to put down as required. I also have commercial property management and construction experience but no SFH flipping experience.
Like someone has said here, HML will look at the deal, LTV and how "safe" the deal is. They want your skin in the game, ie. cash down. I suggest either saving up the cash or partnering up with an experienced investor. But even if you partner up with an experienced investor, you would have to bring something to the table - bring the deal, bring the cash or bring the experience and crew.
Windsor, CT · Member since 2017 · 18 posts · 5 votes
8y
@Paul Choi Someone did say this! I like the way you put it and it puts things into perspective for me—here are the options, this their requirements, this is what you need to do. I guess my next question is in the event that I can’t find the “perfect” deal, do you think it’s wise to borrow the down payment from another lender? It’s sounds kind’ve crazy but I’m not in a position where I can save that amount of money up without it taking a couple of years (at least), family? Forget it! they definitely aren’t up for it... I feel like my only option would be another lender.
sure you can borrow the down payment but you would essentially be 100% leveraged, which is not recommended, especially for something more risky endeavor as a flip.
In your position, I would bust my butt to find awesome deals to flip. partner up with an investor who likes the deal, they front the down payment. fund the rest with a HML. you would have to hustle more to find and vet contractors, do the day to day work, manage the design/construction, source materials, etc. Then sell and split the profits. Since you don't have the cash, you will need to bring the deal and flip management hustle to the deal.
start with a simple flip - new paint, flooring, kitchen cabinets, appliances, landscape. Most if not all work do not need permits. profit margin will probably be slim but what you learn and having this experience on your resume is worth 100x more and can leverage that to get and fund your next flip.
Hi! I know this may sound like a complete newbie question but I really need help. I want to ‘fix and flip' a property but I'm not sure what borrowing route is the best to take. My credit isn't that great, and my brother is willing to co-sign a loan with me however, all the hard money lenders I speak with don't lend to individuals, only LLC's. Is there any way to get around this? Possibly with another type of loan program? I know of 203k loan but if I'm not mistaken those types of loans require the owner to occupy the property for a period of time which I would not want to do. Lastly, If the lender requires a down payment would it be wise to borrow the money for the down payment in addition to the loan for the property?
Some lenders will lend to individuals on a case by case basis, but why would you not want to use an LLC? Also, most lenders are going to require some sort of down payment so that you have some skin in the game.
Windsor, CT · Member since 2017 · 18 posts · 5 votes
8y
@Anthony Palmiotto I do want an LLC. I was informed that if I get a HML, I might need a co-signer for the amount and the lender would cover more of what they would if I didn't have a co-signer. In order for that person to co-sign they would have to be a partner in the business, which I'm not sure if I/they would want.
Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
8y
I hate to be the bearer of bad news but you are going to have a very difficult time doing any investing right now. It is possible to get a HML to swing 100% of a deal however you will need to find a property that can be completed for 65-70% of ARV. As far as getting another loan for a down payment - what are you going to use to secure the loan? A HML is not going to let you give collateral to another bank.
Being that you do not have any experience, do not have a down payment, have poor credit, and really have nothing to assure you can do this I don't see a HML or anyone willing to take on this loan...
Everyone willing to lend money is primarily concerned about being paid back and their risk goes way up given your circumstances.
As mentioned you could try to partner with someone with a down payment or know-how but you will have to bring something of value to the table to have them bring you through the process.
Your best bet is to start saving and keep acquiring knowledge of your market and the flipping process. By the time you have the means to invest you will already have answered most of the questions you posed in this discussion. True deals come and go fast, there are many investors out there looking at the same time so if something comes up you will need to be able to pull the trigger, put in an offer and close quickly.
Denver, CO · Member since 2012 · 350 posts · 175 votes
8y
The core reason why we only lend to LLC'S is to completely avoid the issues of compliance with the post GFC regulations on lending. What better way to prove lending to an investor?
Windsor, CT · Member since 2017 · 18 posts · 5 votes
8y
@John Woodrich Lol somebody has to be. I appreciate your honesty though and you are 100% right! It’s way too risky @Paul Choi also mentioned that going in to a loan where I’m 100% leveraged is a bad idea. After hearing all of the feedback it also sounds like suicide #RecipeForDisaster. Lol. I think I should go, with something much safer like maybe a 203k loan. At least until I get some equity to the property, or as you guru’s say it,some “skin in the game”. Thank you!
@John Woodrich Lol somebody has to be. I appreciate your honesty though and you are 100% right! It’s way too risky @Paul Choi also mentioned that going in to a loan where I’m 100% leveraged is a bad idea. After hearing all of the feedback it also sounds like suicide #RecipeForDisaster. Lol. I think I should go, with something much safer like maybe a 203k loan. At least until I get some equity to the property, or as you guru’s say it,some “skin in the game”. Thank you!
Many of us would love to walk into properties 100% leveraged however this is hard to do and it would put some pressure on the budget and deadlines. Some investors on here are looking for renovations which they can complete and pull out all of their cash. ROI is infinite if you have no skin in the game. It is just hard to get any lender involved if you don't have the means or the will to put in your own cash.
It sounds like you know what you want, just keep learning so you are ready to take action when something comes up.
Roselle, NJ · Member since 2015 · 75 posts · 16 votes
8y
You can also look to find a rockstar deal and wholesale it to a very experienced investor or look to partner with them on the deal for a 80/20 profit scenario or whatever you both decide based on what you bring. This is what I'm looking into. This could hedge your risks of inexperience, & personal finances even if that means you make a little less money than you would have on your own. You can learn more safely.