I'll try to make this short, I'm about to venture into my first flip, property is $58000, rehab costs $50,000, arv $180,000. My liquid funds are extremely limited so finally I found a hard money lender that will fund 100% percent of the purchase and rehab, I have to come up with closing costs ($4500). Rehab time 6-8 weeks, 3 bed 2 bath ranch 1200 sq ft in Bristol PA needs full rehab. I also have to pay origination fee of 3-5% which will be rolled into loan andmy interest will be 13-15%, (I'll know exact figures Monday). Loan term 12 months, interest only payments. My problem is finding a contrctor that will work with the draw schedule of the lender. This lender apparently won't make any of the rehab money available up front to get the project going and every contractor I talked to wants something up front. How do other rehabbers who use this type of lending product for these situations deal with this? Does anyone have a general contractor in the Bucks County/Philly area that work within these parameters?
That is a really nice profit if your numbers are correct. I would suggest you try to find an experienced investor go partner with you on the deal so you can use his/her resources (contractors, cash, etc.). I know it is hard to leave a chunk of the profit on the table, but you would benefit tremendously from the help AND you will still make good money.
I forgot to add that partnering with another investor may keep you from having to use a hard money loan, saving even more.
@CHRIS MITCHELL Do you have a credit card with a reasonable balance that you could charge materials against to get a little float? That is the part contractors usually demand up front.
I've tried pretty hard to get an investor even before I went down the hard money route because it is so expensive but I had no luck and I didn't want to lose this property. It's not easy to get property in Lower Bucks County that can score you this kind of return. I'm sitting here racking my brain out.
I haven't heard of hard money lender financing 100%. That's pretty amazing.
@Wayne: I have a Lowes card with a $12000.00 line and I know they have no interest for 12 month financing specials
@Jimmy: there are a few out there, very few however
Did the other investors turn you down or were you just not able to find any? The only reason I am stressing the point is it is always nice to have an experienced set of eyes evaluate a deal. Hard money will burn through your profit as fast as anything. Your 6-8 week timeframe is pretty optimistic, and then there is no telling how long it will take to sell.
I'm not trying to discourage you at all. I'm just trying to help you think of all the possibilities. Trust me, I am speaking from experience with a high interest HML and barely making it. It can get scary!
I agree with @Austin Lee, partner up with a local investor and use his contacts and network.
First of all, who lent you the money, and why? I cannot get financing like that, unless it would be for a home I lived in. Second, before you signed for the loan, why didn't you line up your contractors? This is something that you have to do in succession I am going to tell you now, that you are going to pay complete retail for your contractor services. Now, I flip homes, and the first thing I tell a contractor is that I do, I get better prices, because they know I will use them again, and that I pay cash for houses. I also make sure that most of them to accept credit cards for their work, and yes I will pay them with a credit card for their service if I can. Most roofers and HVAC contractors will do the work at a reasonable price, if you pay them by credit card. I have found that most electricians want cash, and plaster/drywall contractors. Carpet and kitchen contractors do also accept credit cards. I have a local hardware store that extends me credit for up to 90 days without interest. I use Home Depot, and Lowe's to buy construction materials, using their no interest, also. The best thing you can do is furnish the materials to the contractors. Even by doing that they are going to expect payment when they finish the job. My friend you are stuck, and you will pay retail for the way your are doing this, and you can expect the flip to cost you a whole lot more than you are expecting, just because the contractors will have to wait to get paid. Good Luck!!!
@Edward With all due respect, you don''t know my complete situation and you are making alot of assumptions. First, I haven't signed any loan papers yet, next, I had a contractor lined up and he fell through, Im not going to pay retail, this is my first rehab but not my first rodeo, Im fairly knowledged in home construction and costs, both labor and materials. All of the bids I've gotten have been within $2000 of each other and time frames within a week of each other. If $50000.00 is too much to completely gut a 3 bed 2 bath down the the studs and rebuild with high end finishes then I guess I am a sucker.I had all intentions of purchasing the finishing materials myself and allowing the contractor to pay for the building materials. You are assuming I was going to use seperate HVAC, Plumbers, electriciansand Roofers, that is not the case. The GC I was going to use has a large workforce and they do all work inhouse, no subs (other then landscaping, tree removal). I know I could use credit cards if I wanted to for those things but I would rather not. Also, if you think 3-5% origination fee and 13-15% is for buying a home you live in you are the one that needs a lesson. However, if you are looking for 100% purchase and rehab funding I'd be happy to refer you, within the rules of this forum of course.
@Austin: Wasn't able to find an investor, the contractors gave me time frames from 5 weeks to 6-8 weeks however I want to be conservative and figured 12 weeks to rehab and 2 months to sell
First of all I do my best to pay the lowest interest possible. No, I would never buy a home for that kind of interest, and I would never buy a house that needed work, that I could not complete myself. The last 3B/2B home I flipped cost me less than $60,000 to flip however, that home had 2B/1B when I purchased it, and was in really bad condition. I did some additional work also to the property. I replaced all of the electrical, plumbing, put in central air and heat along with the ducting. All new appliances and cabinets to include granite counter tops. New roof, and stripped to the studs of course, and replaced with new drywall and plaster. Everything was code inspected, and the home was basically brand new. I paid $25,500 for the property, another $2,000 in closing. The total amount I had invested in the property was $84,700. I listed the home for $134,900. However, it sat on the market for 8 months that cost me another $3000 for taxes, insurance and utilities, and that did not include the interest on the credit card bills. I finally sold the home for $115,900. I walked out with about $15,000 is all , even though most homes in the neighborhood sold shortly before I bought the property were selling for above $140,000. Took 90 days to flip. I am warning you that things are not easy right now. For this reason, I am sitting on properties, and renting them. I can do this because I paid cash for them. These will be your numbers, read and head.
Just my two cents here. I Also get 100% financing on some deals, expensive but I do use it. From my experience with dealing with contractors, and I've been rehabbing for 13-14 years now. I typically don't pay them upfront. If I know them very well and they happen to be short on cash, I may throw them some change to get started. However, rehabbing homes is so popular now and there's so many hard money lenders out there that contractors usually know how the game works. If your contractor doesn't, it should be fairly simple to find a contractor that has worked with investors that use hard money lenders. Contractors that have, will understand and feel comfortable with the fact that you get your money in stages from your lender. I let my guys know that I get a draw every Friday from my lender for the work that was completed. I tell them if you do $10k of work that week, then you will get paid 10k. It's that simple. Also it will help them feel comfortable with waiting as long as you have written agreements with them stating the terms. Being that this is your first time, you should also talk with your hard money lender and let him know that you will need his complete cooperation during this rehab. I.e if you show him $10k of work was done, tell him please make sure that he pays that. This way everyone will be paid on time and the job will get done on time. This way everyone is happy.
Try these options also, to stay in budget. This works for me. Sometimes GC's may not have the cheapest prices for the entire job. I find that drywall contractors will give me cheaper prices per board than my contractor. I find that hardwood floor contractors know how to price jobs better, because that's all they do. Roofing companies etc.. painting, you can get away with sometimes.
Also with material, try and buy as many discounted items as possible. With most major holidays, you can save hundreds of dollars on stainless steel appliances from Lowes and Home Depot. Even if you're not ready for them, order them and just have them delivered at a later date. Visit a paint store like Ben Moore or Sherwin williams and ask if they have any oops paint or discontinued or discounted paint. I just purchased some discontinued paint from Sherwin williams today. Usually $28 per gallon, I paid $5 per gallon. Same with roofing and siding suppliers. Always ask first if they have any close outs. There are times I've paid less than $60 per sq. on shingles that cost more than $90 per sq. same as siding. Everyone who posted before me has great advice. You should be able to take something from all of us and make this project a huge success. Sometimes 100% financing with hi interest is all you can do at that time. If you a happy with your profit at the end, being your first deal then I say go for it. Just chime in bp once in a while if you get stuck. Remember, STAY IN BUDGET,
All the best
@Corey Beckwith Is this the reason that my garage is stacked up with Kitchen Cabinets at present?
Thanks so much for the encouragement and knowledge. I thought I was the only guy who checked the "oops" section at the paint store. lol. Also, I hear you on the closeouts, I'm kinda on the frugal side anyways, I'll shop 4 stores for a pair of socks to make sure I'm getting the best deal. As far as using different subs that will be my plan in the future but for this first job with me still working fulltime I want the GC to be my point man and handle as much as possible. I know I'm probably giving away some money that I dont have to but for this first deal it's what's right for me. I'll keep you updated.
@CHRIS MITCHELL Some more advice you may not want. A good idea is that the day you start rehab on the property is to put a "For Sale By Owner Sign" in front of the property. You may be lucky enough to find a buyer, before you hardly get started with it, that may buy it providing you do it the way they desire. I have known this to happen with two others I know. I have never been that lucky, but you may be.
Fantastic tips @Corey Beckwith
@CHRIS MITCHELL , I think if you have multiple quotes for price and time, you are probably good to go. You will need to have enough cash to close and buy some startup stuff, but the credit cards for the big box stores should be enough to get you going. Like Corey mentioned above, don't pay the contractors until they complete the work. Just be sure to tell them up front what the deal is and explain to them you don't get money from the bank until the work is done. They should understand.
@CHRIS MITCHELL Craigslist is not out of the question either, especially if you are using older hardwood flooring or need ceramic tile. Also, just if you plan on using a Realtor to sell the property, let them know the reason for the 'For Sale by Owner Sign" is out, is because you do not want to list it until it is complete. However, if you do get a bite let them know you will turn the deal over to them, if you desire to go that route. A good Realtor will bring perspective clients to you, even though they cannot sell the property until it is completed. They can get it under contract and sell it the day it is completed, however. Also, make sure you invite the Realtor over while it is being flipped, so they will know that you are doing quality work. In the past, and I am sure even now, that many are putting "Lipstick on Pigs". That gives everyone that flips homes a bad name.
Thanks guys for the advice, it is appreciated. @Edward, if things are looking bleak when I go to sell or if it looks like it's going to sit for more then 2 months I'd probably refi to dump the hard money guys and rent it out or who knows, I may have to live in it, lol.
Man, if you do all the work you talking about doing, 10 months is not an option. I hope you sell it in 14 days or less. Ranch style homes are one of my favorite to rehab. One level and I always finish the basement. One last tip. I'm not sure what your house looks. Your Lanscaping is very important as well. I'm not sure when you will finish, don't laugh but when it starts to get a little colder I paint all of my lawns. For $200 bucks I have fresh green looking grass right before the open house. This is the paint they use on football fields. Look it up on YouTube for more details. Download the Houzz app. This will help you a lot with designs. Just type in ranch homes and a whole world of ideas will pop up.
Make it happen my man.
Update us on your journey
@Corey Beckwith Well, I'd hope to be done with rehab by the middle of November and have it sold by Thanksgiving weekend. I"m all about painting the lawn, whatever it takes. I wish there was a basement at this property, it would be another great selling point. Downloading the app right now, thanks again.
@CHRIS MITCHELL , have you been to your local real estate meetups? I'm sure you'll find some investor friendly contractors and other investors as well.
this is the major difference between new construction and rehab. IN new construction your hiring basically top end subs all of them can do net 30 deals which alingn to your lenders request.. when I was loaning I would release 30% at close but it was to very trusted and proved borrowers.. If this is your first time with the lender they don't want to release the funds then the house never gets worked on and they are upside down.
50k down to studs and back up again with nice finishes is in the ball park for sure.
problem with rehab contractors is many of them and I am sure this is what your finding have no money and no credit so they can't get started without money up front. Maybe you pay more for the top end guys and your problem goes away..
Johnny lunch bucket rehab guys can kill you if your not carefull.. don't show up do crappy work etc etc. so in some instances you get what you pay for.
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