How Much Money To Save Before Flipping?

[Christopher Lynch]

Hi All

I am a full time Realtor ( almost 8 years in) I have helped many clients find success but now it’s time to find my own. 

I would like to start flipping houses. The average wholesale deal I am seeing is about 200k purchase price for my location. 

Based on that how much liquid cash should I save before getting into my first deal? I am going to go the hard money route. 

[Chad Shultz]

That is an answer you can't really put an exact number on.  The amount of liquid cash you should have available is the amount needed to properly complete the project.  Each property will be different as to what it will cost to flip.  There is also a difference between a full renovation, where you plan to get top of the market pricing, and what some others will consider a "flip".  Personally, I like to set myself apart from "flippers".  Being in RE for 8+ years, you have likely seen many homes.  You have also likely seen many "flipped" homes.  You should be able to easily tell the difference between a good project and one just thrown together.  The term "flip", as it is used today, gives buyers a bad taste in their mouth from the start.  Most Buyers first thought, when they hear the term "flip", is of poorly renovated properties where everything is just covered up to look nice, but the quality is lacking, ("lipstick on a pig").  My personal approach is to avoid that connotation, by producing the best result possible.  These two approaches will cost different amounts of money to complete, even if on the same property.  If you stay in the game for any length of time, your reputation will follow you, whether you want it to or not.  Doing your flips the right way will always pay off more in the end and down the road.  Whatever you choose, don't start a project without the funds to finish it.  This will ultimately put you in a tough spot, be more expensive and make it difficult to finish a project, if you are having to stop work to find funds.

[Michael Mannino II]

Hey Christopher! I totally understand the idea of saving up to use your own money, but I have found it is more simple than most think to find a good deal and send it to a private money lender. Obviously for your first deal or two, the lender may want you to have some skin in the game as well, but that would be discussed by building a relationship with those people, plus it totally depends on the deal. Become very skilled in estimating all of your numbers properly (ARV, rehab estimates, profits, etc.) and lenders will know when it's a good deal and that you understand the numbers and process behind it. I've got a great lender in mind if you need someone, would be happy to help you out, we do 20+ flips a year in MI.

[Mark Munson]

Hi @Christopher Lynch

     In an ideal scenario, you'll need roughly 10-15% of the purchase price, average closing costs in your market, financing costs (2-3% of the loan amount is a safe projection), some reserves for monthly payments, and roughly 10-15% of the rehab budget to get started (reimbursed on a draw system). You can probably make it work without having all of that, but saving that much will mitigate your risk. 

[Scott E.]

Most hard money lenders will fund ~70% of the purchase price and 100% of the rehab.

This means that on your $200k purchase price you are going to need money for:

 -30% of the purchase price ($60,000)

 -Closing Costs ($5k)

 -Interest Payments ($1600/month)

 -Rehab Overages ($10-$20k)

[Eliott Elias]

None, find a partner to fund. 

[Jordyn Scholer]

It really just depends on the type of flip you are doing. It depends if you are doing a complete gut or a light rehab on the home. Also with hard money lenders they will want around 20% down. Keep that in mind. 

[William Harvey]

@Christopher Lynch Really depends on the hard money since you're going that route. People keep saying HML's require 20-30% down but that isn't always correct. Really depends on how well you buy the deal. On my first flip we got 100% purchase price + renovation draws. I had about $30k at the time and that was plenty as I just had to pay for the reno work with my money, and then the HML reimbursed me with a draw.

I'd figure out the hard money variable first and find one that can do 100% financing plus reno if the LTV/LTC is within their threshold.

I also wouldn't let funding be your limiting factor. As @Eliott Elias mentioned, money partners are out there and are willing to put up cash for things like this. If you miss out on deals because you're trying to "save up" so you can do it yourself, I think that's a very limiting approach. 

Find a good lender, a good equity partner if needed, and most importantly BUY RIGHT! If you do all that, you should be good to go whenever you find a deal.