I feel lost and naïve

Ryan KellyBusiness Member

Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes

1y

@Kevin Kirby this is typically how the vast majority of hard money loans work. Flipping is a cash intensive business and higher risk, which is why the rates and points are built into the loan. If you are low on cash, you may need to find a partner who can bring funds and you manage the labor.

[email protected]512-674-5478

Ryan Kelly Group - Keller Williams5110 Reviews

Website View Page

2 Reply

Kevin Kirby
OP
Member since 2025 · 15 posts · 5 votes
1y
@Ryan Kelly thanks for your insight.
0 Reply

Nadeem Alamgir

Real Estate Agent · Member since 2023 · 831 posts · 577 votes

1y

Some investors will either partner with private money (friends,family, network) to cover the down payment and upfront rehab, while the hard money lender finances the bulk of the purchase. Over time, you build relationships with lenders. Once you prove yourself on a few deals, you can sometimes negotiate better leverage.

2 Reply

Kevin Kirby
OP
Member since 2025 · 15 posts · 5 votes
1y
@Nadeem Alamgir thank you sir!
0 Reply

Patrick Roberts

Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes

1y

These are very standard terms. I'm not sure who told you that hard money lenders allow $0 down, but this is definitely not the case. I would expect a minimum of 10% down on the purchase plus closing costs, and likely more than 10% down if this is your first flip.

Very, very few lenders are going to give a lump sum up front for the rehab in a situation like this (unless they are idiots). That typically only happens with highly experienced investors who have a deep history with the lender. Construction draws are to be expected. Same goes for monthly interest payments.

At a bare minimum, you will need cash to cover the purchase downpayment and closing costs, as well as cash to carry the property until it sells. Some lenders will finance the interest payments and escrow them for you in a hold-back, but understand that you are paying interest on interest if you do this.

Flipping is not a $0 cash game. You need capital - just not all of it. HML/private lenders will typically float 80-90% of the costs for you. You need the other 10-20%.

One last thing- you mentioned the timing of cashflows reducing your profitability. On a deal like this, using your cash for a downpayment and monthly payments will only marginally impact your profitability. In fact, borrowing less should actually increase the total amount of profit, as you will pay less interest while all other costs stay the same. What this will impact is your liquidity, which it sounds like you dont have, as well as your return on equity.

Your credit score and report will likely be considered by most lenders, especially at high leverage like what youre looking for. Most of your cheaper, high leverage HML products are instituational paper, which are going to behave more like bank underwrites than private lending. Another factor is the lender is seeing if you have another way out if the deal goes sideways - in the event that the flip wont sell, can you get another loan to pay off the HML.

Overall, it sounds like you might not have the cash or credit for deals like this. If you have the ability to find really good deals, partner up with someone who has the financial firepower to bring what your missing. If you think you have a really good deal but no one will partner with you, it's time to look internally - everyone else is seeing something that you are not seeing.

8 Reply

Kevin Kirby
OP
Member since 2025 · 15 posts · 5 votes
1y
@Patrick Roberts hey Patrick, thank you for the reply, I have several lenders ready to go to work on this project so I'm still trying to determine my next step. I appreciate you reaching out and dropping some knowledge.
0 Reply

Mike Klarman

Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes

1y

If this is your first property, you have to figure 20% down, if you can get less - hooray.

Rehab draws work like that across the industry. Let's say they release the entire 50k to you at one time and you wanna buy drugs with it and just forfeit the loan. I'm just saying, you can see how giving an irresponsible/corrupt person everything up front is very, very risky position for a lender so that's why it works on completed work only. You should have to start with a nice 15k - 20k deposit to contractor and then that opens access to rehab draws as work will get done and then the contractor only needs 30k more of the 50k to finish and at the end your 20k would come back to you minus all the draw fees.

Even by your numbers: 180k + 50k and ARV 330k - that's a 69% project cost to ARV. That's a steal at that price and as a financing offer that is sure to get beat by a cash offer. You won't even win this house. A cash guy can comfortably offer 200k if your 50k rehab is spot on and 50k is nothing really. It's certainly not an entire rehab so it would all depend on how this now "blended rehabbed" house looks and can it fetch 330k which I'm sure at the top comps. I always take 10% off the comps and use that number in my equations. So for you, use 300k. You buy this for 180k, put 50k in and it better be used wisely - material and labor costs will swallow that whole. You have a very familiar story. You rushed in and really didn't take the time to see if you can afford this deal. Just by eyeballing it I can see that this deal will cost 50k - 70k to get through exit to exit. And it could take months and you better triple check your comps. Who showed you the comps package and what kind of comps. Does yours really compare. You can get yourself into a sticky situation if you can't get out. All your capital in the deal will get forfeited to get out (best case), worst case (you need to put more money in to get out).

Are you on the hook for EMD?

How do you know what the as-is value really is. The savvy RE investor is at a real disadvantage with on market properties. They'll never have the best offer. You need to put yourself in cash buy scenarios where it is you and the asset and either there's a deal or not. Not you and 9 other competing for a house. I can just tell from your tone, that will never be you winning those bids and even if you did win one - I'd be very scared for you. What if the numbers are not right? What if you are not liquid enough? What if the market becomes a buyers market? I was involved with a deal where the ARV on the bridge appraisal was 430k. Actual sale price once it was said and done was 345k.

I've been a part of hundreds of deals in some capacity either as a broker, loan officer, processor, investor, most times you do not get your ARV number at sale.

5 Reply

Kevin Kirby
OP
Member since 2025 · 15 posts · 5 votes
1y
@Mike Klarman thank you Mike, I appreciate your insight and taking the time to respond.
0 Reply

Jake YuskaitisBusiness Member

Lender · New Jersey, USA · Member since 2022 · 254 posts · 67 votes

1y

without an address no one can look at this deal properly.

there are truly asset based loans that don't look at credit but more favorable terms will often require a soft pull on credit to see how good of a borrower you are.

the rehab done in draws in going to be how the vast majority of companies do it.

$0 down does exist but don't count on it as an option. you're going to need skin in the game. I'd be interested to see the issues of this deal. If you'd like you can DM me and I can go over it with you.

[email protected]551-287-6884

Frontier Funding LLC533 Reviews

Website View Page

2 Reply

Kevin Kirby
OP
Member since 2025 · 15 posts · 5 votes
1y
@Jake Yuskaitis hi Jake, I appreciate you responding. The deal is strong I've had that verified. I just need to get to work on this and take the risk and not be crippled by fear.
0 Reply

Mike GrudzienPro Member

Lender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes

1y

Kevin,
These are all great replies and good, solid info. Read and learn from the comments.

1 Reply

Kevin Kirby
OP
Member since 2025 · 15 posts · 5 votes
1y
@Mike Grudzien agreed, thank you Mike!
0 Reply

Erik EstradaBusiness Member

Lender · Member since 2022 · 6k+ posts · 1k+ votes

1y

Quote from @Kevin Kirby:

I’m working on a fix and flip deal and the biggest obstacles I’m running into are on the financing side. ( I feel pretty Naive and frustrated)

Every hard money lender I’ve talked to wants me to bring a decent chunk of cash to closing (down payment, points, and closing costs).

That’s tough because I’m trying to minimize how much I have out of pocket going in. I’ve always heard the hardest part is “finding the property”. Ive found the property. Now that I found the property I keep hearing contact a hard money lender with no money down blah blah blah and it’s clearly not the case. Books and content creators are all saying they are able to do it with “$0 money down” or “0 out of pocket”

I’ve also heard the loan is based on the “strength of the deal” not your credit score but yet they want my credit info.

I believe I have a great deal with a pretty big margin for a fix and flip. Stay with me!

On top of that, the rehab funds aren’t given upfront. Instead, they’re held back and only reimbursed after I complete work and get it inspected. That means I’d have to float all the construction costs myself first, which is a big cash flow issue for me.

Then there are the interest-only payments. They start right away during the rehab period, which adds pressure to get the job done quickly and sell fast. If the project drags out, I’m on the hook for those payments even longer.

I’ve tried negotiating terms to roll more of the upfront costs into the loan, but so far lenders haven’t been flexible.

Between the upfront cash, the reimbursement setup, and the ongoing payments, I’m worried this deal might eat into my profit margin or worse, put me in a bad spot if rehab goes over budget or takes longer than expected.

Has anyone dealt with this before? How do you structure financing so you’re not constantly out of pocket during a flip? Is it even a possible. They all say wow your numbers are great but I just don’t have the upfront cash required for the deal. It’s really frustrating when that the only thing in the way from making this happen.

Here’s some numbers:

201,995 list price (175-180k target price) 330,000 arv 40-50k rehab

And I can’t get the deal financed 🤦‍♂️ any advice and sorry so long?

Hard Money is usually a last resort when it comes to financing...

If you are stretched for cash, it may make more sense to prioritize building cash reserves before taking on a fix and flip. You absolutely need heavy cash reserves, especially on flips.

Real estate investing is very risky and very volatile. You may assume your ARV is $330,000 now and your rehab cost at $50,000, but truthfully you should also plan for the worst. What if your ARV is actually $250k, when you finish the rehab and market/list the property? What if your actual costs are $70k instead of $50k?

Why would a hard money lender provide you 100% financing with no payments and no skin in the game and no experience? The cost of foreclosing is horrible for a lender.. and your credit will tank with a few mortgage lates...

Hard Money lenders lend off experience, reserves, credit and the deal. Hence why if you have no experience, they will want to see a larger down payment and cash reserves. It's basically like you starting a business without proof of a track record of profitability. Would a bank lend you hundreds of thousands of dollars if they do not have an assurance that you will repay them the money?

I am seeing it now more than ever, flippers that got too caught up on the initial loan terms, and are not able to sell or even refinance because of market rates and conditions.

You are much better off partnering up with an experienced investor to learn the ropes and the risks. They will also likely want to see some skin in the game as well.

If you can find value add deals, then you might want two consider wholesaling them?

[email protected]818-269-7983

LuxePrivate Investments LLC 572 Reviews

Website View Page

2 Reply

Kevin Kirby
OP
Member since 2025 · 15 posts · 5 votes
1y
@Erik Estrada Thank you for taking the time out your day to go over that.
0 Reply

Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes