typical flip process via HML?

Question

Can someone walk me through the process of a typical flip deal via HML assuming:

property: 80k

rehab: 20k

ARV: 150k

cash on hand: 50k

Do I put 50k down first to purchase the property and then get an appraisal for the rehab, borrow 20k (rehab) + remaining 30k from HML?

Ryan Blake · Answer

@Brett Chien This is the standard steps I send out to my clients. I tried to remove any specifics to the company I work for.

Steps To Funding

1)Get pre-approved. Send all info needed and receive a pre-qualification letter that states you have same as cash financing.

2)Get a property under contract.

3)Send us your executed contract and rehab estimate.

4)Set-up your closing with a title company of your choice.

5)An appraisal will be ordered by Longhorn Investments. You will pay the appraiser directly and will receive a copy of the completed appraisal.

6)Get an insurance policy with a mortgagee clause and a start date the same as closing. The policy must be pre-paid for the length of the loan.

7)Close on the property. We will have our funds wired either one day early or same day.

8)Begin the rehab process.

9)Request draws. Use the website to submit draw requests, a third-party inspector will visit the site and write a quick report, funds equal to the percentage of work done will be wired to your account (this typically takes a total of 3 – 4 business days from the request to the wire).

10)Close on your property (sale/refinance) and payoff the outstanding balance on your loan.

Jason D. · Answer

@Brett Chien what would normally happen is that you would fund the downpayment, say 15% ($12,000), and the HML will fund 85% ($68,000), and the full rehab, on a draw. So after closing, you would pay to start the rehab and at a few points throughout the rehab, you would request a draw to recover what you've paid in rehab to that point. The HML would send an inspector to verify and they will wire you the money.

Andrew Postell · Answer

@Brett Chien normally the HML will want to do some type of appraisal/evaluation of the value themselves. Before closing or anything. Then based on their determination of value they will lend you something like 70% or 75% of the ARV. You can certainly bring as much as you own money as you want. In general, they will probably want some type of initial investment from you if it's your first time working with them. But I have seen some HMLs not need any money out of your pocket if you can buy and renovate below those thresholds.

Hope this makes sense how I am describing it.

Jason D. · Answer

@Brett Chien I've never heard of a HML workthat way, but I've also never asked, so I'm not sure. Best bet would be to call a few and see what they say

Brett Chien · Answer

@Jason DiClemente but let's say I want to put down all of our cash 50k for the property to lower the amount borrowed from the HML, would I be able to do that and borrow the full rehab amount from the HML before starting the rehab to pay the contractor upfront?

Jason D. · Answer

@Brett Chien sure. So, say you are doing a full rehab. You pay the contractor to replace the windows and roof up front. When those jobs are completed, you would contact the lender and request payment for that work. They send an inspector to verify, then you get that money. Ideally it works best if you have about 2/3 of the rehab money in cash, so you dont have to stop the work to wait for reimbursement. You do 1/3, and while you're waiting for the inspection, you are continuing with the project, then you get reimbursed and can keep going.

Brett Chien · Answer

@Jason DiClemente I know you pay contractor in draws/phases but I'm unaware of the part where you "request a draw to recover what you've paid in rehab", can you elaborate on this?

Brett Chien · Answer

@Andrew Postell thanks for the info. I guess what I'm trying to understand/ask is, do HML's typically bundle the purchase of the property and rehab costs into one contract or are these going to be separate loans/transactions ie. 80k-50k (down payment) = 30k, rehab loan= 20k?

typical flip process via HML?

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