Cash vs Financing for Fix & Flip

[Adam DuCharme]

I'm getting ready for my first flip project. Is there a rule of thumb of what costs require cash up front vs what can be covered via loans? From what I"ve gathered on a few posts, I believe the hard money loan downpayment, closing costs, and holding costs likely require cash whereas the hard money loan, renovation costs, and selling costs are essentially covered via loan/after selling. Am I off base here? I want to make sure I'm budgeting correctly.

[Mike Klarman]

Ok, so let's examine a potential deal:

Purchase: 175k

Rehab: 55k

ARV: 350k

So right away, I wanna take the ARV and multiply it by 72.5%. That tells me where I want to be on max project cost. That's 253,750. Your project cost in this example is 230k. That's only 65.7% project cost to ARV. That is a great deal.

If the guarantor for the loan has 720+ credit, even with no experience, you can get 90%/100%

So the costs of the deal would look like:

Loan amount: $212,500

17,500 down payment

4,250 in origination

1500 admin/service/legal fee

1200 for title

600 - 900 for insurance

maybe 5 loan payments at 1700 each or so: 8500

You need to front at least 10k to contractor to get started

Utilities for 5 months: 1k - 1.5k

That all comes to like 45,300. That's what this deal would cost all the way through at 90/100. It would be more at 85/100 or 80/100.

Think about the entire lifecycle of a deal, not just costs of the loan.