Obtaining additional Capital for our Fix/Flips to Scale Faster

Lender · Springfield, MO · Member since 2023 · 652 posts · 314 votes

2y

Sounds like you guys are getting 2024 started on the right track!

I always push folks towards DSCR/Hard Money lending if you are starting to scale, as the efficiency and flexibility with lenders in this space are specifically conducive to scaling and even leveraging equity as much as capital.

You'll want to pay close attention from the lenders that you utilize for minimum purchase price, minimum loan amounts, and if you end up BRRR-ing, keeping an eye on their seasoning requirements. Timing up your financing when it comes to purchase/refis/etc. is going to start becoming more and more important as you continue to grow in doors and working capital.

Would be happy to chat more about this if you and/or your team were interested in talking through either these deals or any others you have an eye on.

Good luck!

[email protected]417-427-2612

0 Reply

Ko KashiwagiPro Member

Lender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes

2y

Hi Anthony,

Considering you are entering this full-time with multiple projects at the same time, the BRRRR strategy would be a great way to keep on rolling cash. Yes, you can flip and get the capital back, but market could move and it may take months to sell the property, but a refinance could be done within a couple of weeks.

For people pushing multiple projects like you, using Hard Money and DSCR (refinance) lending would be a great way to scale. There are also refinance programs that have 3 month seasoning requirement and sometimes none. Be sure to watch out for minimum loan amount and seasoning requirements, as not all lenders will lend below 100k.

Happy to answer any questions and walk you through options if you're interested.

310-848-9776

0 Reply

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

2y

@Anthony Pellettieri

I would go hard money as well and get a good relationship with a lender. If you covered the rehab cost and they financed the acquisition that could be more advantageous.

Also if you keep one as a rental and own that you could use that as collateral as well

Side note just remember you will pay taxes on your gains so if you make $50k make sure to leave some money set aside for taxes

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Tony Pellettieri

OP

Investor · NC/SC · Member since 2023 · 149 posts · 77 votes

2y

Quote from @Chris Seveney:

@Anthony Pellettieri

I would go hard money as well and get a good relationship with a lender. If you covered the rehab cost and they financed the acquisition that could be more advantageous.

Also if you keep one as a rental and own that you could use that as collateral as well

Side note just remember you will pay taxes on your gains so if you make $50k make sure to leave some money set aside for taxes

Excellent strategy!

If we can get good enough deals on each acquisition, the bank should cover most/all of each purchase, correct?

If I kept one as a rental and owned it outright, what would I need to use it as collateral for? A gap in the LTV and the purchase price?

0 Reply

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

2y

@Anthony Pellettieri

A bank will not lend 100% they will lend 75-80% of the lower of appraisal or purchase price. So even if you bought a $500k property for $400k, bank will only lend around $300-$320k

A private lender would go higher since you could use that other property as collateral but your interest rate with them will be 1.5-2x higher

If you own a home outright and cash out refinance that money could be used for your new flip and when sold replenish funds

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1 Reply

Account Closed

Real Estate Agent · Virginia Beach, VA · Member since 2024 · 20 posts · 8 votes

2y

I would go hard money lending, if you can't go all cash. If you need some recommendations on contacts let me know, I have a few that my investors work with pretty regularly.

I work primarily in the 757 area code for Virginia. If you want to expand in this market, we currently have 6 properties available with amazing potential. Some are pretty close to turn key, some are flips.

Sounds like you're rocking and rolling, let me know if I can be a value add to your journey. Congrats!

1 Reply

Tony Pellettieri

OP

Investor · NC/SC · Member since 2023 · 149 posts · 77 votes

2y

Quote from @Account Closed:

I would go hard money lending, if you can't go all cash. If you need some recommendations on contacts let me know, I have a few that my investors work with pretty regularly.

I work primarily in the 757 area code for Virginia. If you want to expand in this market, we currently have 6 properties available with amazing potential. Some are pretty close to turn key, some are flips.

Sounds like you're rocking and rolling, let me know if I can be a value add to your journey. Congrats!

Thanks Virnisha! We're doing medium to major renovations right now so are sticking with local in high growth areas. Definitely would be open to contacts that offer HMLs and DSCR.

0 Reply

Alex BreshearsBusiness Member

Lender · Springfield, MO · Member since 2020 · 351 posts · 504 votes

2y

Quote from @Tony Pellettieri:

We just started to Fix & Flip using our own capital a few months back and currently have two projects that are both about 3-4 weeks out from completion. I decided to commit full time to learning this business as I knew starting out, even after studying real estate for the past 4 years, it was going to be a tremendous learning curve. I'm fortunate to have found a great GC to work beside me that will be our Project Manager to pull permits, and Subs/Handyman to complete all of the required work.

We have some additional capital on hand that exceeded what we needed to complete our first two projects and recently came across a deal that we didn't want to pass up that our crew is able to take on. We just put it under contract yesterday. That'll be flip #3.

Our plan is to sell the 2 houses which we expect to make nice returns on, invest all of our profits back into the purchase of 3-5 more properties, and scale as quickly as we can. We've made some mistakes along the way to say the least, which was expected, but they have led to many lessons learned.

My question is... What forms of borrowing/lending would be best to access the capital we need when we find a deal we're interested in purchasing? Starting out, once a funding source is lined up, I'd ideally like to put under contract a deal a week for the first couple of months while ensuring the team we have in place is able to handle the work we take on while making adjustments as needed.

Our target properties are able to be purchased for 40k-60k, need 15k-70k in repairs, and have an ARV of 125k-225k+ depending on the extent of the rehab involved. We plan for our holding time moving forward to typically be 10-12 weeks up to 4-6 months depending on the SOW.

Welcome to real estate investing - it sounds like all the time you spent learning is paying off. As someone who lends out my own capital - I can tell you I’ve seen my borrowers organically and manageably grow their real estate portfolio. The focus on scaling is one thing - but the purpose is another. Acquiring more doors isn’t always the solution! So with that being said - I just wanted you to have a moment to think about what exactly does “scale” look like to you from a financial perspective - a time perspective - and what you physically want to be doing with your time.

Once you know that part - it is easier to put the puzzle pieces into place. For example - if you decide over the next 12 months you want to buy 10 more properties to rent out as long term rentals - and you will be living off some level of cash flow for these properties - then making sure you have the best borrowing capacity possible will be crucial. Think high credit scores and being able to show sufficient liquidity for your growing portfolio as your reserve requirements.

Bank loans or conforming loans may work for properties that are habitable and not in need of significant renovation. Also - if you have the ability to have 30 days to close on that particular property - that may offer the lowest interest rate, longest amortization period, and you won’t have to go through the expense and time of refinancing. DSCR loans will also work in this way - but more of the focus may be on the property itself - but your personal credit may be pulled in the process.

If you are facing the situation the properties are not habitable and you will need to close quickly - hard money/private money (those are two different things) - will likely be your best option. Those loan products can vary wildly - but I can speak about what I generally do as a private lender. I will lend up to 100% of the purchase price that goes up to 70% of the after repair value. We will also lend on renovation and repairs up to that 70% after repair value. In that case - your cash requirement would be down payment (if any) and closing costs - and then refinance into permanent debt within 12 months once the property is renovated and rented.

Operating in the price ranges you are - what my investors do is buy 2-3 at a time, renovate them as you have mentioned and then refinance them all together into a portfolio loan to get around the minimum loan amount problem that can be sometimes an issue in these types of markets.

You can use leverage as a tool, but it can also be a weapon. There needs to be a balance of liquidity for yourself and your business, cashflow, and leverage for the property/portfolio. That’s why I say scale with intention - it’s easy to get excited and caught up - and before you know it you are working 80 hours a week in a capacity you never imagined.

pick the right tool for the right job!

[email protected]Podcast Guest on Show #210

2 Reply

Alex BreshearsBusiness Member

Lender · Springfield, MO · Member since 2020 · 351 posts · 504 votes

2y

Quote from @Tony Pellettieri:

Quote from @Chris Seveney:

@Anthony Pellettieri

I would go hard money as well and get a good relationship with a lender. If you covered the rehab cost and they financed the acquisition that could be more advantageous.

Also if you keep one as a rental and own that you could use that as collateral as well

Side note just remember you will pay taxes on your gains so if you make $50k make sure to leave some money set aside for taxes

Excellent strategy!

If we can get good enough deals on each acquisition, the bank should cover most/all of each purchase, correct?

If I kept one as a rental and owned it outright, what would I need to use it as collateral for? A gap in the LTV and the purchase price?

If you have one property that is paid off - what a private lender like myself might be able to do is cross collateralize that property with your new acquisition so essentially the down payment money is coming from equity in that second property. Then the lien is paid off when you refinance - so no down payment needed. Just another tactic to try - flexibility of private lenders for the win!

[email protected]Podcast Guest on Show #210

1 Reply

Tony Pellettieri

OP

Investor · NC/SC · Member since 2023 · 149 posts · 77 votes

2y

Quote from @Alex Breshears:

Quote from @Tony Pellettieri:

We just started to Fix & Flip using our own capital a few months back and currently have two projects that are both about 3-4 weeks out from completion. I decided to commit full time to learning this business as I knew starting out, even after studying real estate for the past 4 years, it was going to be a tremendous learning curve. I'm fortunate to have found a great GC to work beside me that will be our Project Manager to pull permits, and Subs/Handyman to complete all of the required work.

We have some additional capital on hand that exceeded what we needed to complete our first two projects and recently came across a deal that we didn't want to pass up that our crew is able to take on. We just put it under contract yesterday. That'll be flip #3.

Our plan is to sell the 2 houses which we expect to make nice returns on, invest all of our profits back into the purchase of 3-5 more properties, and scale as quickly as we can. We've made some mistakes along the way to say the least, which was expected, but they have led to many lessons learned.

My question is... What forms of borrowing/lending would be best to access the capital we need when we find a deal we're interested in purchasing? Starting out, once a funding source is lined up, I'd ideally like to put under contract a deal a week for the first couple of months while ensuring the team we have in place is able to handle the work we take on while making adjustments as needed.

Our target properties are able to be purchased for 40k-60k, need 15k-70k in repairs, and have an ARV of 125k-225k+ depending on the extent of the rehab involved. We plan for our holding time moving forward to typically be 10-12 weeks up to 4-6 months depending on the SOW.

Welcome to real estate investing - it sounds like all the time you spent learning is paying off. As someone who lends out my own capital - I can tell you I’ve seen my borrowers organically and manageably grow their real estate portfolio. The focus on scaling is one thing - but the purpose is another. Acquiring more doors isn’t always the solution! So with that being said - I just wanted you to have a moment to think about what exactly does “scale” look like to you from a financial perspective - a time perspective - and what you physically want to be doing with your time.

Once you know that part - it is easier to put the puzzle pieces into place. For example - if you decide over the next 12 months you want to buy 10 more properties to rent out as long term rentals - and you will be living off some level of cash flow for these properties - then making sure you have the best borrowing capacity possible will be crucial. Think high credit scores and being able to show sufficient liquidity for your growing portfolio as your reserve requirements.

Bank loans or conforming loans may work for properties that are habitable and not in need of significant renovation. Also - if you have the ability to have 30 days to close on that particular property - that may offer the lowest interest rate, longest amortization period, and you won’t have to go through the expense and time of refinancing. DSCR loans will also work in this way - but more of the focus may be on the property itself - but your personal credit may be pulled in the process.

If you are facing the situation the properties are not habitable and you will need to close quickly - hard money/private money (those are two different things) - will likely be your best option. Those loan products can vary wildly - but I can speak about what I generally do as a private lender. I will lend up to 100% of the purchase price that goes up to 70% of the after repair value. We will also lend on renovation and repairs up to that 70% after repair value. In that case - your cash requirement would be down payment (if any) and closing costs - and then refinance into permanent debt within 12 months once the property is renovated and rented.

Operating in the price ranges you are - what my investors do is buy 2-3 at a time, renovate them as you have mentioned and then refinance them all together into a portfolio loan to get around the minimum loan amount problem that can be sometimes an issue in these types of markets.

You can use leverage as a tool, but it can also be a weapon. There needs to be a balance of liquidity for yourself and your business, cashflow, and leverage for the property/portfolio. That’s why I say scale with intention - it’s easy to get excited and caught up - and before you know it you are working 80 hours a week in a capacity you never imagined.

pick the right tool for the right job!

Hey Alex, Thank you for your detailed response. After much research in the past 24 hours, we're really started putting the pieces together. Our plan is to use HMLs for acquisitions and DSCR Loans to Refi on properties we decide to hold. Our reason behind wanting to scale is to acquire more hold properties in a shorter time In the high growth/appreciation area we're investing in. We realize with growth comes the need of finding/bringing on more people to assist with all the tasks/extra work involved.

Our goal this year is to find/complete a combination of 50+ BRRRRs/Flips, cashing out $20k+ more on the properties that we hold, and $30k+ more on the ones we decide to sell. I believe we will make many mistakes and learn much along the way.

We look forward to becoming contributing members of BP as we learn and help others as others have been helping us.