First Flip - Borrowing Questions

2 Replies

Planning to do our first flip in the next couple weeks.

Taking an unsecured loan from the bank, savings, and borrowing money from 1-2 friends.

What advice do you have for making sure the friends’ investments are secure and safe? I was thinking of filing a primary lien on the property to secure their investment (hard money - interest deferred format). Anyone have recommendation on forms or process of doing this?

@Liam Morris do you have numbers in mind or are you just basically doing this as an exercise?

Personally for a first flip I wouldn’t borrow money from friends (or family) unless you are okay with no longer being friends. Most flips don’t go well the first time. Obviously there are exceptions but most are break even or loss at best.

If you do borrow money, give them a firsr position on the property, so if you don’t pay them back within the allotted time, they can foreclose. This will only work if you don’t get a mortgage (or hard money)

@Caleb Heimsoth

@Caleb Heimsoth

Yes, solid numbers, not an exercise.

And while I agree that first flips may not go well, I disagree that it is a reason to avoid family and friends who are eager to support your venture. As long as the numbers make sense and the risk of the investment is more on you than them.

$70k purchase, $30k Reno, ARV $140-150k. I have my R.E. license which helps reduce costs at the sale as well.

Bringing $70k on our own between unsecured loans and cash. Raising the remainder from 1-2 friends. Worst case scenario, their investment is significantly less than the current value of the property and we take the hit on our end.

Time is our biggest enemy, but I’ve calculated a number of worst case scenarios and am fairly confident that we will be able to adapt and change course if necessary.

I guess we are just looking for some guidance as to the practical steps involved with borrowing from the friends, which liens to file and how, any recommended resources, etc...