How much out of pocket money is needed for a 300K (ARV) flip?

[Zach Howard]

For the flippers and hard money lenders here: If someone is looking at a flip with an ARV of $300k, how much out-of-pocket money will they need? Give me a breakdown of the costs if you don't mind. Thanks.

[Mike Klarman]

We can reverse engineer to come up with some approximate numbers.

ARV = 300k

Project cost = 300k x 70% = 210k

210k = Purchase Price + Rehab

a 300k ARV won't be a 4 bed house host times. So let's assume a 3/1.5 structure of about 1300 - 1800 square feet. An interior rehab for this kind of house will be 70k with quality finishes. If you need mechanical work the rehab can go to 90k - 100k. But for this example let's assume 80k.

So now 210k = PP - 80k

PP = 130k

So now we have a rough estimate of all the numbers:

PP - 130k

Rehab - 80

ARV - 300k

Now you're question is how much capital will it take to get through to the exit.

Let's say you get 85%/100% financing.

You'll need 15% of 130k for the downpayment - 19,500

Closing costs for lender: 2 points, plus 1500 service fee (5500)

Closing costs for title - 1500

Deposit to Contractor to get started (this gets returned after the rehab is over but is still a capital requirement) - 10k - 20k

Holding costs - 1500/2k for 6 months...? - 10 - 12k

Miscellaneous Costs - utilities, insurance, any overages - 3k - 5k

Buffer of 10% reserves - 5k - 10k

So if you add all that up, you can see how you need to be 50k+ liquid to get through just a smallish deal like this.