leveraging bank lending

1 Reply

Hey BP community

So I am ready to start taking my first steps toward my portfolio. I was advised by a lender that I should go out and get personal lines of credit or personal loans to leverage as downs and/or rehab funds. I know that I have good credit and I have called around the banks in my area to see/know my options. When it comes to BRRRR and flipping, is this a wise move to borrow all of the funds for a deal? I'm trying to wrap my head around how I would pay back the hard money/private money and the banks and come out with any equity after doing the deal.

Thanks

Nate Fraser

This advice that you got is not what I would have advised. You can use either Hard Money or a fix and flip loan. Both will cover 100% of the rehab so long as the deal has the correct ARV (75% Max.) You will find down payments on the purchase price from 10-20% depending on how good of a deal it is and where it is located.

Once you have it rehabbed and rented, you can do either a cash out refinance or a no cash out refinance to pay off the hard money or fix n flip loan, or sell it as a flip. If all goes really well, you can do a cash out, to get your original down payment and closing cost money back out, so you have a cash flowing property and can go to the next deal. 

You just need that starting pot of money to use for your initial down payment and closing costs. Keep in mind that you can always negotiate that the seller pay your closing costs, so you limit the amount of money out of pocket.

The key to everything is to find a good enough deal that you can easily get your cash back out once you cash out refinance it. If you find a deal like that, you are more likely to get a 10% down payment than if the deal is on the edge of the 75% ARV number?

If you need down payment money, there are Gap Funders out there. I don't recommend going that route unless you have your own money but choose to keep it as reserves. You have to have reserves. Things come up on rehabs that most people didn't see when they were buying, so you have to be prepared and have a contingency fund.

If you do it all correctly, you will make a nice sum of money and move on to your next deal. If you do it wrong, it could be the last deal you do? Be prepared!!!  

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