Real estate questions
Hey guys! I just joined yesterday due to the book I was reading (the book on rental property investing). Just a little background of myself, I’m currently 21 years old and I am a contractor. My dad owns a improvement business, and would LOVE to get into fix n flips. The only thing is, I make about $40k a year and have some savings but not a lot. My question is, how would I get the finances to do a fix and flip? Should I go through a bank or a hard money lender? Will they even accept me with the income I have? We would be doing all the work ourselves as we have team of reliable tradesmen and would love to start. Thank you so much!
If it were me, I bould buy a live in flip using a conventional home loan which is way cheaper than investor financing. After a year move out of the home and into another live in flip and start renting out the house that you spent the year fixing. House hacking!
For fix and flip, you're going to want a hard money lender. A traditional bank will not lend on a fix and flip property that is too distressed, though there are a couple rehab options for a primary residence if you want to go the route Karl mentioned.
The good news with hard money lenders is they do not care about your personal income. The bad news is these loans come with higher fees and interest rates than conventional. With no flipping experience you will need 15-20% down, that can get reduced to 10% down after you have 3 flips under your belt.
Hi Brandon! That's awesome that you and your dad want to flip houses, that's how my company started too! We have built systems in place that we now flip 20+ houses a year, all with hard money lenders. This is usually easier as you get a few successful flips under your belt to show a good track record, but I would definitely recommend networking with other investors in your area and see if anyone would be interested in lending on a flip with you. I've also had great success with Kiavi (previously called Lending Home). Typically your first couple will have higher terms than when you can show you've had success on a few, and that's okay. Just make sure your numbers work well with the terms you get. I would love to help you out even more if you have more detailed questions, feel free to send me a message any time!
Hard money lenders are a great option, and you can also structure some deals through novation agreements as well! Then you are on the hook for the labor/materials, but not the whole home purchase, and get paid back + profit when the home sells. I have a friend that is quite successful with novations!
Hi Brandon totally agree with everyone else. I would definitely recommend using hard money for the initial purchase and renovations (if needed) if you're looking to do fix and flips. If you're looking at doing a live in flip, then going with a lender will help minimize your up front costs! Depends on what you're looking to do and your current situations!
Just some figures to consider - Brandon -
Example:
After Repair Value (ARV) = 300,000
Using the 70% Rule 300,000x70% = 210,000
Purchase and Rehab Cost = 210,000
You will need $42,000 down plus closing costs 1-3% and additional money to start the construction process before your draw sets it. Not to mention costs like dumpster rental etc.,
You have a head start because you are already in the construction business.
Wishing you the best!
Quote from @Brandon Zenisek:
Hey guys! I just joined yesterday due to the book I was reading (the book on rental property investing). Just a little background of myself, I’m currently 21 years old and I am a contractor. My dad owns a improvement business, and would LOVE to get into fix n flips. The only thing is, I make about $40k a year and have some savings but not a lot. My question is, how would I get the finances to do a fix and flip? Should I go through a bank or a hard money lender? Will they even accept me with the income I have? We would be doing all the work ourselves as we have team of reliable tradesmen and would love to start. Thank you so much!
I agree with most of the people on here. Flipping a house is more of "project" so worrying about interest rates from a hard money lender is a waste of time. You'll probably only need the money for 6-8 months anyways. Just add the interest payments as another line on your project costs. A lot of investors are complaining about not being able to find good contractors, so you and your dad are in a great position.