Fix and Flip Lending Questions

3 Replies

I am brand new to BiggerPockets and am looking for a little bit of advice. I have recently found a property in Montana that I believe would make a great candidate for a fix and flip. I'm entertaining ways of funding it, and being new to this whole thing, I feel lost. To give a bit of background, lets talk about the property. It is a 1/1 900sf currently listed at $120,000. The average comps in the neighborhood are all 2 bedrooms, but listed well over $220k. 

My current idea to fund this project is with an interest only HELOC on my primary residence, however, I am only eligible for a $150k line of credit. Ive estimated $40k in rehab on the investment home which would put me short roughly $20k after holding/realtor fees.

My biggest question is: Is it possible to buy the investment property with a HELOC and then turn around and apply for a second HELOC on said property to fund the renovations? And even if it is possible, is this crazy?

Are there better/more creative ways to go about funding this?

Also, I do have cash reserves to pay off the HELOC's but would prefer not to use them to fund the actual renovation.

Thanks in advance to the BiggerPockets community for any and all information. You guys are the best.

Why not see if the seller will carry back 20K or more as a 1st mortgage on the property until you sell it? They get $100K at closing and hold a 20K 1st mortgage with a balloon payment far enough out that it allows you the time to get it rehabbed and get the property sold. Be conservative on the amount of time that you think this will take.

I would also strongly consider adding at least 1 more bedroom or possibly 2? 1 bed comps typically are no where near the value of 2 bed or 3 bed comps. 

Thank you both for the responses. I would say about 65% of the homes in this area are a 2 bed. The remaining 35% being 3 and up. A 2nd bedroom would definitely be added. It actually already exists but the rehab was never finished so it doesn't reflect on the listing. This project is basically picking up where someone left off. 

Are there any perticular risks to be aware of before taking on a project like this?