New to Real Estate · Charlotte, NC · Member since 2019 · 73 posts · 46 votes
I am looking for funding but I don't have much to bring to close. Property is $82K purchase price, ARV is $198K and reno is $35K. The numbers are great. My credit is not strong at all and I only have about $8K cash reserve. Am I going to have to let this incredible opportunity go?
@James Williams What is your risk tolerance? Personally, if I was in your position I would get a hard money loan and go for it. However I have a high risk tolerance and I am still very young. Don't want to take on as much risk? Half of a deal is better than no deal... Get a partner!
@James Williams If you really wanted to do it yourself you could try to find a hard money lender to finance you. But if you are fairly new I wouldn't recommend it, in case something goes wrong.
@Aaron Flake I definitely want to do it myself. I have a very experienced contractor that I know and trust and he is managing the rehab. There is plenty room for error on this deal. I have researched every aspect.
@James Williams What is your risk tolerance? Personally, if I was in your position I would get a hard money loan and go for it. However I have a high risk tolerance and I am still very young. Don't want to take on as much risk? Half of a deal is better than no deal... Get a partner!
Well if you are comfortable with it go find a hard money lender in the area. Keep in mind the interest they charge is heavy so pay them back as soon as you can. Good luck!
Like the above posted mentioned, half of a deal is better than no deal.
Probably a dumb question, If James were to use a Hard Money Loan on a really good deal (which this deal sounds like it), is he able to NOT put any money down and close? Or would the Hard Money Lender require some form cash on James part?
ALSO, how would His cash reserves of $8K not be enough for a Hard Money Lender?
@Neetu Nagi if I had better credit and DTI ratio, I would just get gap funding. The zip code for this particular property is 28677. But I run into these deals all the time.
@Tommy Daggett that is not a dumb question at all. Most hard money lenders will not cover your project 100%. They want you to have some skin in the game. Though they specialize in asset based lending, they lend based on the after repair value of the project. I as a newbie flipper could come in and completely botch my budgeting and if I cant handle the interest payments they may have to take the property. Also, beyond the initial numbers for the loan, I would need at least a 10% down payment for the purchase price of the property. In this case, that's already $8,200, and that does not include closing cost. I need about $15K total to close the deal. As far as reserves, beyond the purchase and closing cost, I would need money to start the rehab project. Hard Money Lenders typically work on a draw schedule. I would front the funds for a scheduled portion of the work, they send someone to inspect and verify that it's done properly, then they reimburse me for that portion so that work can continue. Repeat that cycle until project is complete. Not to mention utilities and incidentals. All of which are part of my carrying cost along with the interest payments. I would need about $25K minimum in reserves if I use most Hard Money Lenders. If you have any questions about this, send me a message and I can give you a call to discuss the whole process.
Run the numbers on the BP Calc and find out why but you can’t even do that correctly if you don’t know the terms of your lender. If someone doesn’t know wether or not you they have enough money then they honestly shouldn’t be doing a deal. If you’re first deal goes down horribly then you won’t make it to the second. Before I would invest the only money I had I would call who I need to call and have all my questions answered. This is just a general statement to all not directed just to Tommy. Do your homework, walk the deals, run the numbers so you’ll know the game and the rules of it. Even if your lender covered 100% of the purchase& Rehab you still need money for closing and carrying costs and you may even need to pay your contractor first, have it inspected and then wait to be reimbursed. Things like this don’t get mentioned but if you don’t know to ask these questions you could have a real issue. Just my opinion.
Run the numbers on the BP Calc and find out why but you can’t even do that correctly if you don’t know the terms of your lender. If someone doesn’t know wether or not you they have enough money then they honestly shouldn’t be doing a deal. If you’re first deal goes down horribly then you won’t make it to the second. Before I would invest the only money I had I would call who I need to call and have all my questions answered. This is just a general statement to all not directed just to Tommy. Do your homework, walk the deals, run the numbers so you’ll know the game and the rules of it. Even if your lender covered 100% of the purchase& Rehab you still need money for closing and carrying costs and you may even need to pay your contractor first, have it inspected and then wait to be reimbursed. Things like this don’t get mentioned but if you don’t know to ask these questions you could have a real issue. Just my opinion.
I agree 1000%, but that is why these forums exist. He put his self out there and asked the question and I'm sure he learned something. You are absolutely correct though, if someone doesn't understand those intrinsic numbers, they are not ready to jump in. That is definitely why we are here though.
Depending on what's hurting your credit (you said not good), sometimes there are strategies to easily improve it, sometimes significantly which will allow you to get your own gap funding. As you mentioned a credit partner may help as well. The other route already mentioned is wholesaling the deal to another investor that has the $$ to do it. You make some $$ for finding the deal and can use that toward the next property. Good luck!