My math might be off.

[Marcos Gonzalez]

Hello BP,

I am doing my first flip with my brother in law. It's a SFR that we are purchasing for 187k with and ARV of around 320k. We are estimating that it will need around 50k of improvements putting us at around 250k all in. We found a private money lender that will front us all the 250k in return for 10% on his investment so 25k. With his cut we would be in for about 275k leaving around 45k profit for both os us. This seems pretty good for our first flip, I am just wondering would it better to go through a HM lender so we could profit more. Or is this PM loan going to be way easier?

Thanks, 

[Jeff S.]

If you are paying a flat dollar amount for your loan, @Marcos Gonzalez, you might very well save a lot in interest by going with another lender. 

Paying $25k for $250k is a 10% APR if the loan is for a year. It's 20% over six months and no private/hard money lender will charge that (plus your loan could be usurious). If you can complete the flip in less than a year, you might be better off with a more professional lender.

In addition, you are grossly underestimating your expenses and will not make anything close to what you wrote. The greatest expenses on most flips are generally rehab costs, interest on your loan, and sales commissions when you sell. Then there are property taxes, title and hazard insurance, utilities, and escrow or closing attorney fees on both your buy and sell-side. There could also be other state-specific fees.

I strongly suggest passing this deal by a few local hard money lenders. An experienced lender will have a spreadsheet that considers local expenses and can give you an idea of profitability. A local lender will know your area, the cities, and the prevailing lending rates. Maybe even the building departments.

Some lenders will work with newbies, and some won’t. Unfortunately, most will also want you to have some skin in the game and have a financial cushion. This is in your interest since the last thing you need would be to run out of money mid-way through your project.

Good luck to you, Marcos.