Should I use CASH for flips or get financing?

6 Replies

I'm looking to purchase my first flip. I've been a real estate agent here in San Antonio for the last 6.5 years and have a pretty good grasp on values, areas, and how to work my way around the MLS doing CMA's on homes.

I'm looking at starting my first flip with a good buddy of mine who is like-minded and has cash (not a realtor, but works in estimating for commercial construction).

To the point, we both have cash to fund our projects.  Somewhere near 80k combined of our own cash (with the potential to get more, 20-40k though family investor).  However, I'm a total newbie when it comes to creative financing.  I should point out that I just recently started my own Real Estate company last year so conventional 30yr financing is out of the question as I don't have 2yr's of experience as self-employed... However, I have an 800 credit score and very low debt/income.

My question, do we go in this first one together with our cash or what financing should we/I be looking into to conserve our cash and save to start a potential second flip?

Ideally, we are targeting 3br, 2ba $50-60,000 homes here in SA, that when done right would have an ARV of around $110k.

Thanks!

I like using cash for flips if I can. You can make very strong offers and move fast. I know there are a lot of people who think you should always use someone else's money, but to me it just adds a layer of complexity to the deal and slows things down. With that said, I have used private lenders in the past and that is great as well. Its just the conventional lenders I don't like dealing with.

@Kyle Handy   Hi, and welcome to BP! I should be closing on my first flip in San Antonio in a couple of weeks, so by all means don't consider me overly experienced ;-) That said, we picked up our property in the $50-60K range, and it is now under contract in the $130K range. With hard money, we were in all told less than $40K of our own money, including waaay too many months of holding costs. Ultimately, it's really up to you: do you want to work on say one all cash flip in the same price/rehab range, one financed flip in a higher range, or potentially two flips financed in the lower range? Of course, you want to make absolutely certain you don't overleverage and you have some spare cash, but I think the question is really how careful you want to be. Let us know what you decide, and good luck!

Non Sequitur: I don't think the bold text button likes to actually turn off for me :-P

Austin and Chad - thanks for your responses.  My partner and I have been leaning towards using our cash and doing just a single flip as we test the waters.  I do like the fact that I feel we have more potential negotiating power.  Also, I like the fact that we will have less holding costs.  I think this may be the route we go, initially at least, unless someone here can point out maybe something that I'm not potentially accounting for.  Thanks again!

Hi Kyle, it's probably a good call, especially on the first one, to just do the one. I was generally speaking to financing versus cash in general, but definitely test the waters first. Let us know how things go!

@Kyle Handy  - It depends on your strategy you are trying to go from here. You would have to get into financing soone ror later if you are looking for a longer term in RE. Having said that I would use cash for rehabs and have 10% reserves for future properties. 

Getting access to money is key and then finding the deals. You have the first on your side, which is a great advantage compared to may investors out there. So think how are you going to fund your property #2, 3 and onwards. Cash or financing? Cash can used for this one but you may have to look into financing as you go expanding

Join the Largest Real Estate Investing Community

Basic membership is free, forever.