Excited about first flip until now..HELP!
Real Estate Investor · Langhorne, PA · Member since 2014 · 36 posts · 8 votes
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?
@J Scott Agreed, but another factor to consider is that those same contractors who can afford to extend credit have also resolved a lot of the other issues (involving both personal and business processes) that might cause delays unnecessarily. Not that it guarantees no delays, but they are less likely.
Absolutely agree. Personally, I find the sweet spot for contractors to be right in that area -- they've got things together enough that they don't need $100 to buy materials to get started on a job, but not so together that they have a front office and a fleet of trucks.
The problem is, those types of contractors tend to either move up or down, so they eventually become either the type that has no cash reserves or the type I can't afford... :-)
This is the good thing about rural areas. 3rd generation carpenters who do great work but will never move up because there isn't the business to support it. We don't get people anything like as cheap as you sometimes talk about in your posts, but we don't pay top end, ever.
@CHRIS MITCHELL This deal sounds good.
1. I like the Lowe's card with the $12k limit but I'm not impressed with your Contractor. I usually have two or three lined up, in case something happens. e.g. I just finished a rehab where the Electrician (new and a strong recommendation from the Plumber) hung me up for a total of two weeks (dialysis twice a week, Mother had a stroke, he caught pneumonia, Uncle passed away, driving 1 hour plus, cat had kittens......)
However 1st Open House: 4 offers, they bid it up, we wanted the next to the top offer because no conditions and we're closing shortly.
2. I'd set up a meeting,when you select a Contractor, with your Lender and discuss the terms of payment openly, this should reassure your Contractor. Take notes and have everyone present (You, Lender & Contractor) correct notes if needed, then initial them.
@Edward Briley jeez Ed, you sound like someone's father;-( Let's be a little more encouraging.
Hey all,
New developments this morning, I got the contractor issue dealt with, a friend of friend who I contacted first but was tied up for 2 months with jobs, talked to him and he is wrapping up a job in a couple of weeks and should be available and is familiar with working the draws, no upfront money needed. All is well, but....
Then the broker contacted me with the final terms, 6% origination and 13.99% plus app fee and other junk for 12 months. The issue is he said before I could roll in the origination fee now he says I have to pay it at closing. I confronted him about this and he said that was another lender,. Well, how about telling me that? He said he did, he absolutely didn't! I feel like I got the bait and switch. I can't just make $7000 appear out of no where. Ugh.
@CHRIS MITCHELL I use hard money lender all the time and they do 100% loans for me. I am in Texas and we have lots of hard money lenders who do 100% loans as long as Purchase price and rehab together is 70% of the ARV. So if you find that kind of deal you are good. Your hard money lender is also good in wetting the deals. They see so many deals everyday and know a lot about different areas. They are into lending money and won't do deals that they think risky. As they are doing so many deals they have list of contractors that work with their clients and who they can recommend. My hard money lender has list of good and bad contractors. contractors get so much job from them that they don't mess up as they can lose multiple clients in a blink. I have a great relationship with my hard money lender. I prefer hard money lenders than the partners as my hard money costs me around 33% of my profits and partnerships cost me 50% of my profits. I don't do deals that are over 70% ARV after repairs. If your numbers are correct your 70% is $128,000. I am assuming they are giving you $128000 and your points and closing cost etc is being covered by that. They will hold the $58000. Ask them to give you name of the contractors that work with their clients. Negotiate with the contractor for 25% to 33% down instead of usual 50% down. Tell them that you need to put the materials on the Lowes card. These contractors know the deal and will work with you. best of luck and congrats on scoring a great deal as your first one.
Thanks for reading my post, I've resolved the contractor issue, my issue now is with the hml broker and lender. I was initially told I could roll in the origination points and then I got told by the broker 2 days ago that I had to pay them at closing. Im not happy with my broker, I would like to talk to the lender directly as I would feel better that my questions are being asked and answered properly. The broker is only concerned about his 2 points.
@Chris Mitchell
Reputable lenders don't do this. What do you mean by he is a broker? I deal with hard money lenders directly. Our usual points here are 3 points to 5 points depending upon experience and strength of the deal.
You may need to find a direct HML. Go to your local RE Club website and see which lenders are advertising. Call them directly.
If this guy is a hard money lender and he is borrowing the money from different banks they may have different requirements.
My hard money lender borrows from several banks and each bank has different requirements. It just varies little bit here and there but over all very similar to each other.
I don't know your market so not sure if 6 points are normal or not.
Do you know any experienced investors in your area that you can talk to?
I get lots of calls from new bie investors in my area as they keep getting my name from different people. And I always try to help them out. I am sure you have investors in your area who will be happy to help point you to right people.
priyanka
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Raymond
Any update on this?
Chris, I'd like to talk with you, I'm brand new and I'm getting ready to start