For fix & flip loans, rehab 100$
Rental Property Investor · Philadelphia, PA · Member since 2023 · 68 posts · 18 votes
I have done 2 flips with my cash only so far and I'm trying to finally go with fix and flip loans to buy multiple houses. Usually these fix and flip lenders do ARC up to 85%~90% & rehab 100%, so I know I have to pay some downpayment for purchasing houses.
But I recently reached out to one broker and he said once I purchase house with borrowing money, I still have to pay for whole rehab amount at the beginning to handyman and when everything is done, I get money from the lender for whole rehab payment. Is this normal?
Or I dont know if this paying whole rehab price from my pocket first and get paid from lender at last is depending on lenders.
And if not so, is there any way that I can get paid from lenders for rehab payment at the same time as what I get for purchasing houses?
Hey @Hyeseong Park,
I've never heard of a hard money lender requiring you to pay the full rehab cost upfront. Typically, it works through draws of money based on the work completed. You do have to start the project with your own money, but they will reimburse you each time you show them the completed work. For example, if you have painted the house both inside and out, you can request a draw for the amount you spent on that. They usually ask for pictures or send someone to verify the work. You pay a small fee for every draw ($100-$300), so some investors try to minimize the number of draws to reduce costs.
Hey @Hyeseong Park,
I've never heard of a hard money lender requiring you to pay the full rehab cost upfront. Typically, it works through draws of money based on the work completed. You do have to start the project with your own money, but they will reimburse you each time you show them the completed work. For example, if you have painted the house both inside and out, you can request a draw for the amount you spent on that. They usually ask for pictures or send someone to verify the work. You pay a small fee for every draw ($100-$300), so some investors try to minimize the number of draws to reduce costs.
Want to second @David Ramirez's comment regarding the process. Most HMLs fund the construction through draws that require a submission of a request for the funds after a portion of work has been completed.
This is a good question to ask your hard money lender so that you understand what there process and turnaround consists of when submitting a draw request. There are some lenders that offer up an upfront draw to kick start the project but you'll nevertheless want to have some type of access to funds (whether cash or a credit line) to help front some of the costs knowing that you'll be reimbursed at various intervals throughout the project.
If you haven't had a chance to check it out, I would strongly advise that you listen to the Rookies podcasts with James Daynard who gives a masterclass in structuring your processes to increase the sucess rate for your flips. Here are the links just in case:
Want to second @David Ramirez's comment regarding the process. Most HMLs fund the construction through draws that require a submission of a request for the funds after a portion of work has been completed.
This is a good question to ask your hard money lender so that you understand what there process and turnaround consists of when submitting a draw request. There are some lenders that offer up an upfront draw to kick start the project but you'll nevertheless want to have some type of access to funds (whether cash or a credit line) to help front some of the costs knowing that you'll be reimbursed at various intervals throughout the project.
If you haven't had a chance to check it out, I would strongly advise that you listen to the Rookies podcasts with James Daynard who gives a masterclass in structuring your processes to increase the sucess rate for your flips. Here are the links just in case:
Thanks @Eduardo Aguilar, that's a great help! will look into it.
I have done 2 flips with my cash only so far and I'm trying to finally go with fix and flip loans to buy multiple houses. Usually these fix and flip lenders do ARC up to 85%~90% & rehab 100%, so I know I have to pay some downpayment for purchasing houses.
But I recently reached out to one broker and he said once I purchase house with borrowing money, I still have to pay for whole rehab amount at the beginning to handyman and when everything is done, I get money from the lender for whole rehab payment. Is this normal?
Or I dont know if this paying whole rehab price from my pocket first and get paid from lender at last is depending on lenders.
And if not so, is there any way that I can get paid from lenders for rehab payment at the same time as what I get for purchasing houses?
Hey HP, I believe you were told that if you purchase the property with cash you can not borrow just the rehab. funds from a rehab lender. You can get a line of credit or find a private lender. The rehab lenders require you to borrow a percentage of the purchase price and the entire rehab budget. In order to be successful at BRRRRing or flipping you need to be willing to accept advice from a knowledgeable source and not look for the answer you want to hear. Many investors make the mistake of starting a rehab cash only and then get stuck trying to finish the rehab with their credit cards and destroying their credit, making it difficult to refinance and repeat. Good luck and keep moving forward.