What contract do I use to house flip with hard money?

Rehabbing & House Flipping
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What contract do I use to house flip with hard money?

Scott A.
Tampa Bay, FL · Member since 2016 · 45 posts · 4 votes

So when i find a property and want to make an offer to the owner, then what?  i tell my hard money lender and they prepare contract?  I'm new.

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Austin Faux
Real Estate Investor - Internet Marketing Professional · Denver, CO · Member since 2014 · 181 posts · 41 votes
10y

@Scott A.

Here is a step-by-step breakdown I hope this helps!  (Feel free to upvote me if it does ;)


Step 1: Confirm your numbers

What you need to do is first make sure your numbers are right. Pay special attention to the Comps so you can figure out if your ARV is solid. You also want to make sure your rehab estimate is good. You may also need to know how much money the owner has left on the mortgage you need to pay off, as well as any additional Liens and their amounts. Then add end investor profit as well as your assignment fee if wholesale.Then figure out your MAO (Maximum Allowable Offer)

  • Get ARV by Comps
  • Get Rehab by Contractor Walk-through or Best Guess
  • Get Mortgage/Lien by asking Owner (or get Auth to Release info and talk directly to Bank)
  • Get Liens by preliminary Title Search (Title Co. will do for free for "realtionship building" purposes)

Step 2: Make Offer not greater than MAO

  • Offer accepted move to Step 3.  
  • Offer rejected make counter offer and follow up weeks later to see if motivation changed. Hardest part is getting the Homeowner to keep talking.  Most like to shut down as soon as they say, "No."  So just tell them that you can't pay their asking price, but you can close quick so what number would work for them.  Then keep negotiating.
  • Don't try to push them into taking an offer because if they're not motivated then it's not going to be a win/win for everyone.  Do what's best for the homeowner.

Step 3: Get under contract

  • I suggest using your state contract purchase contract.  So that means you need to learn your state contract inside and out.  LEARNING YOUR PAPERWORK is probably the most important thing you can do, right up there with your numbers.  For me in Colorado I honestly cross out probably half of the State Contract because it doesn't apply.  
  • Add any subject-to clauses by writing them in at the bottom of the contract, or where there is space for it.
  • Don't forget to add "and/or assigns" after your name even if you plan on flipping because you may want to keep your exit strategies open.
  • Have/Understand your escape clauses....but DON'T plan on using them.  Remember you're hear to make money, not run and hide once you reach the next "growing pain/speed bump."

Step 4: Get Detailed Rehab info/Call Hard Money for Needed Info

  • You should call and talk to your Hard Money people and find out specifically what info they want moving forward into a deal.  Find out what their process is and follow it.  
  • Usually this means they want to see your numbers from Step 1 and your Rehab estimate from your contractor.  
  • They may also want to see some details on how you're going to exit strategy the property.  Include photos from other rehabs you've done, or give them photos, stock numbers, etc of the types of materials, floorings, paint, etc you'll be using to complete the flip.
  • Use BP's House Flipping calculators, print off the details and give to Hard Money Lender.
  • Hard Money Lender will tell you what info you're missing, and get it done.

Step 5: Get Partner if needed

  • One thing I tell lots of newbies is, "Do as much as you can, and when you start getting stuck then find a good experienced mentor and partner with them on the deal."  Learn as much as you can, research and do as much as you can, and when you're really stuck then it's time to get a mentor/partner.  With a mentor/partner on the deal that is more experienced, you will be able to grow beyond your speed bump and be ready next time.  Keep doing this over and over again with every deal, every time you're stuck and you'll be kicking butt in no time.
  • You may also run into a situation in which your money lender wants $X amount down.  They want to see you have "skin in the game."  If that's the case and you can't pay the $X down then find another mentor/partner that has the money and wants to get in on the deal with you.

Step 6: Exit Strategy and Drive to the Bank

  • Complete your exit strategy...which could be another 6 steps in and of itself depending on what you choose to do.
  • For Buy, Fix and Sell use another State Contract to sell
  • For Wholesale use an assignment agreement to assign 1st state contract to buyer
  • For Subject-To/Seller Financing.....HO Deed to Landtrust, Landtrust w/HO as beneficiary, Assignment of Beneficiary to you/LLC, Assignment of Funds letter from HO to you/LLC, Power of Attorney from HO to you/LLC, Auth to Release Info from HO to You. (Much more detailed...message me if you really want to know the ins and outs)
  • Take your check to the bank and cash it.

You're going to do great!  Make some mistakes, learn along the way!

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  • Account Closed
    Hackettstown, NJ · Member since 2015 · 192 posts · 26 votes
    10y

    Scott, you need to have the property under contract. I think you need to read up a little more on hard money loan and the process. There's a ton of info here on bp 

    0Reply
  • Elda Castillo
    Decatur, GA · Member since 2015 · 49 posts · 6 votes
    10y

    @scott 

    @Scott A. when you and the seller agree on the terms of the property you prepare a contract similar to purchase and sale agreement, http://www.realtyassociation.com/files/purchaseagr...

    The hard money lender will need this contract along with other documents in order to underwrite the loan.

    Check out the resources page on bp for more guidance.

    https://www.biggerpockets.com/rei/

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y

    Lol. What a question, spend more time reading and help yourself.

    1Reply
  • Manny Cirino
    Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes
    10y

    @Scott A. Hard money doesn't change the type of contract you use. It is just a Standard Purchase and Sale Agreement (at least in my area anyways). The contract usually have an area which asks you, how will you be financing the deal, is it cash, personal financing or approved financing(mortgage).  If you check the box for anything other than cash, then usually the title company will write out the terms of the loan, and the hard money lender will have their own paper work for you as well. It is usually a promissory note and mortgage, for you to sign. I hope that helps.

    0Reply
  • Austin Faux
    Real Estate Investor - Internet Marketing Professional · Denver, CO · Member since 2014 · 181 posts · 41 votes
    10y

    @Scott A.

    Here is a step-by-step breakdown I hope this helps!  (Feel free to upvote me if it does ;)


    Step 1: Confirm your numbers

    What you need to do is first make sure your numbers are right. Pay special attention to the Comps so you can figure out if your ARV is solid. You also want to make sure your rehab estimate is good. You may also need to know how much money the owner has left on the mortgage you need to pay off, as well as any additional Liens and their amounts. Then add end investor profit as well as your assignment fee if wholesale.Then figure out your MAO (Maximum Allowable Offer)

    • Get ARV by Comps
    • Get Rehab by Contractor Walk-through or Best Guess
    • Get Mortgage/Lien by asking Owner (or get Auth to Release info and talk directly to Bank)
    • Get Liens by preliminary Title Search (Title Co. will do for free for "realtionship building" purposes)

    Step 2: Make Offer not greater than MAO

    • Offer accepted move to Step 3.  
    • Offer rejected make counter offer and follow up weeks later to see if motivation changed. Hardest part is getting the Homeowner to keep talking.  Most like to shut down as soon as they say, "No."  So just tell them that you can't pay their asking price, but you can close quick so what number would work for them.  Then keep negotiating.
    • Don't try to push them into taking an offer because if they're not motivated then it's not going to be a win/win for everyone.  Do what's best for the homeowner.

    Step 3: Get under contract

    • I suggest using your state contract purchase contract.  So that means you need to learn your state contract inside and out.  LEARNING YOUR PAPERWORK is probably the most important thing you can do, right up there with your numbers.  For me in Colorado I honestly cross out probably half of the State Contract because it doesn't apply.  
    • Add any subject-to clauses by writing them in at the bottom of the contract, or where there is space for it.
    • Don't forget to add "and/or assigns" after your name even if you plan on flipping because you may want to keep your exit strategies open.
    • Have/Understand your escape clauses....but DON'T plan on using them.  Remember you're hear to make money, not run and hide once you reach the next "growing pain/speed bump."

    Step 4: Get Detailed Rehab info/Call Hard Money for Needed Info

    • You should call and talk to your Hard Money people and find out specifically what info they want moving forward into a deal.  Find out what their process is and follow it.  
    • Usually this means they want to see your numbers from Step 1 and your Rehab estimate from your contractor.  
    • They may also want to see some details on how you're going to exit strategy the property.  Include photos from other rehabs you've done, or give them photos, stock numbers, etc of the types of materials, floorings, paint, etc you'll be using to complete the flip.
    • Use BP's House Flipping calculators, print off the details and give to Hard Money Lender.
    • Hard Money Lender will tell you what info you're missing, and get it done.

    Step 5: Get Partner if needed

    • One thing I tell lots of newbies is, "Do as much as you can, and when you start getting stuck then find a good experienced mentor and partner with them on the deal."  Learn as much as you can, research and do as much as you can, and when you're really stuck then it's time to get a mentor/partner.  With a mentor/partner on the deal that is more experienced, you will be able to grow beyond your speed bump and be ready next time.  Keep doing this over and over again with every deal, every time you're stuck and you'll be kicking butt in no time.
    • You may also run into a situation in which your money lender wants $X amount down.  They want to see you have "skin in the game."  If that's the case and you can't pay the $X down then find another mentor/partner that has the money and wants to get in on the deal with you.

    Step 6: Exit Strategy and Drive to the Bank

    • Complete your exit strategy...which could be another 6 steps in and of itself depending on what you choose to do.
    • For Buy, Fix and Sell use another State Contract to sell
    • For Wholesale use an assignment agreement to assign 1st state contract to buyer
    • For Subject-To/Seller Financing.....HO Deed to Landtrust, Landtrust w/HO as beneficiary, Assignment of Beneficiary to you/LLC, Assignment of Funds letter from HO to you/LLC, Power of Attorney from HO to you/LLC, Auth to Release Info from HO to You. (Much more detailed...message me if you really want to know the ins and outs)
    • Take your check to the bank and cash it.

    You're going to do great!  Make some mistakes, learn along the way!

    3Reply
  • Scott A.
    OP
    Tampa Bay, FL · Member since 2016 · 45 posts · 4 votes
    10y
    Great many

     thanks to all :)

    0Reply
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