How do people finance 30 rehabs in one year?

FL · Member since 2016 · 912 posts · 107 votes

I'm looking forward to doing my first. I will have to do one, then use the profits to do the next. I could probably only do 3-4/year this way. For this who rehab way more, how exactly do you finance them?

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

Private lenders. Once you have a track record of success, there are lots of people out there who will want to throw money at you for very reasonable rates (8-12%). Many successful investors (myself included) have more money these days than they have deals -- if I could find enough deals, I could easily do 50-100 projects a year without any of my own money.

Focus on learning the business and getting a couple successful deals under your belt. The money will follow...

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Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
They have assets/cash/leverage.
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Patrick Philip
OP
FL · Member since 2016 · 912 posts · 107 votes
9y
Originally posted by @Manolo D.:

They have assets/cash/leverage.
I have about $150,000 in home equity. Do you think I should split it up between several HML down payments?
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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
9y
Private lenders. Once you have a track record of success, there are lots of people out there who will want to throw money at you for very reasonable rates (8-12%). Many successful investors (myself included) have more money these days than they have deals -- if I could find enough deals, I could easily do 50-100 projects a year without any of my own money.
Focus on learning the business and getting a couple successful deals under your belt. The money will follow...
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
9y
Private or hard money lenders. If they are doing that they have some cash built up and probably good track record.
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Patrick Philip
OP
FL · Member since 2016 · 912 posts · 107 votes
9y
Originally posted by @J Scott:

Private lenders. Once you have a track record of success, there are lots of people out there who will want to throw money at you for very reasonable rates (8-12%). Many successful investors (myself included) have more money these days than they have deals -- if I could find enough deals, I could easily do 50-100 projects a year without any of my own money.
Focus on learning the business and getting a couple successful deals under your belt. The money will follow...
Wow that sounds awesome.
Once I get to this point, how would I find these investors? The only way I know is Craigslist.
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
9y
Originally posted by @Patrick Philip:

Originally posted by @J Scott:
Private lenders. Once you have a track record of success, there are lots of people out there who will want to throw money at you for very reasonable rates (8-12%). Many successful investors (myself included) have more money these days than they have deals -- if I could find enough deals, I could easily do 50-100 projects a year without any of my own money.
Focus on learning the business and getting a couple successful deals under your belt. The money will follow...
Wow that sounds awesome.
Once I get to this point, how would I find these investors? The only way I know is Craigslist.
By the time you get to that point, those people will already be familiar with you, as they will have met you at real estate groups, through the contractors you're working with, through the agents/brokers you're working with, through the lenders you're working with, here on BP and on other Internet discussion boards, etc.
In other words, those relationships will form naturally over time as you gain success and credibility.
I've never once approached someone for money unsolicited, yet I could find 100 people right now who would be happy to lend to me simply because of the relationships we've built naturally over the past 10 years.
It's the same with most of the successful and trustworthy investors I know...
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Jeff Fleming
Elizabethtown, KY · Member since 2013 · 5 posts · 3 votes
9y
Also look into smaller local banks. Some of them will finance fix and flips at very competitive rates. I'm just getting started myself and I found one that will let you finance up to 80% of a deal at 6.5%. 6 months interest only payments.
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Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
Originally posted by @Patrick Philip:

Originally posted by @Manolo D.:
They have assets/cash/leverage.
I have about $150,000 in home equity. Do you think I should split it up between several HML down payments?
Stick to one lender with all equity, once you do 3-4, you should have enough track record/network that you can pull back that equity and have someone else's money roll. Some people that I know simply want the interest, there are several that I know that they are too busy at work making their 120k/year and have 100k in the bank gaining 0.5%, so 12% will be much appealing. You'll find out that 12% might be your starting if you are below 10 deals, and it will go down as you go up.
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Patrick Philip
OP
FL · Member since 2016 · 912 posts · 107 votes
9y
Originally posted by @Manolo D.:

Originally posted by @Patrick Philip:
Originally posted by @Manolo D.:

They have assets/cash/leverage.
I have about $150,000 in home equity. Do you think I should split it up between several HML down payments?
Stick to one lender with all equity, once you do 3-4, you should have enough track record/network that you can pull back that equity and have someone else's money roll. Some people that I know simply want the interest, there are several that I know that they are too busy at work making their 120k/year and have 100k in the bank gaining 0.5%, so 12% will be much appealing. You'll find out that 12% might be your starting if you are below 10 deals, and it will go down as you go up.
I'm still confused as to who that "someone else" is.
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Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
9y
Any why would you choose to pay the high interest rate and points of a private money lender if you can bankroll yourself? I've seen private lenders offering 4 points and 12% interest on a 6 month loan. That is the kind of rate I have on my credit cards and isn't a way I'd want to go.
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Patrick Philip
OP
FL · Member since 2016 · 912 posts · 107 votes
9y
Originally posted by @Eric James:
Any why would you choose to pay the high interest rate and points of a private money lender if you can bankroll yourself? I've seen private lenders offering 4 points and 12% interest on a 6 month loan. That is the kind of rate I have on my credit cards and isn't a way I'd want to go.
Because of the opportunity cost of tying up your cash.
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Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
9y
For a financing cost in the neighborhood of 28% annual that better be some opportunity. I think I'd prefer being on the lending end of that type of transaction. Too risky at that rate for my taste, 'opportunity cost' or not.
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Patrick Philip
OP
FL · Member since 2016 · 912 posts · 107 votes
9y
Originally posted by @Eric James:
For a financing cost in the neighborhood of 28% annual that better be some opportunity. I think I'd prefer being on the lending end of that type of transaction. Too risky at that rate for my taste, 'opportunity cost' or not.
How is it 28% annual? My HML charges 12.99%.
Opportunity cost is like... I have a HELOC with approximately $160 - $180,000.
I could use this to flip one house... OR... I could spilt it up between down payments on 3-4 fix and flips by using a HML.
Sure, the HML will take some of the profits, but it will work out much more profitable because I'm having my money work for me more efficiently.
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Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
9y
Is that 12.99% per year, or a shorter time period, and are there no points? If so, that would be a bit better. I have seen hard money offered to a REI group at 12% for 6 months with 4 points. 16% over 6 months is 32% annual.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
reality reality check.. you want to flip 40 homes in a year
lets say your in a low value market were you can buy for 100k put in 25 to 50k per project
lender will want some equity.. as your not proven
so how are you going to do that when sales cycles are 6 to 9 months from start to finish.. some get lucky and can flip in 120 to 150 but what I see is 6 to 9 months.
so your starting out.. you would need to buy about 30 homes right off the bat
so that's 3 to 4.5 million.. 20% equity you need 600 to 900k in cash.. and you need another couple hundred grand in operating capital you have to make debt service while you hold these for nine months. so lets say 10% interest to make It easy on 3 mil is about 25k a month.. so that's another 200k for debt service.
so this is why not MANY can do 40 flips in a year its so capital intensive.. and you certainly can't start out that way you need to prime the pump and maybe in 3 to 5 years you get there.
@J Scott this is why when I see the TV guys touting 40k on a deal and folks then automatically move to well I just do one a month and Wa LA I am making 480k large a year so sure I will pay 50k to learn how to do this.. why not.
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
9y
Originally posted by @Jay Hinrichs:

reality reality check.. you want to flip 40 homes in a year
lets say your in a low value market were you can buy for 100k put in 25 to 50k per project
lender will want some equity.. as your not proven
so how are you going to do that when sales cycles are 6 to 9 months from start to finish.. some get lucky and can flip in 120 to 150 but what I see is 6 to 9 months.
so your starting out.. you would need to buy about 30 homes right off the bat
so that's 3 to 4.5 million.. 20% equity you need 600 to 900k in cash.. and you need another couple hundred grand in operating capital you have to make debt service while you hold these for nine months. so lets say 10% interest to make It easy on 3 mil is about 25k a month.. so that's another 200k for debt service.
so this is why not MANY can do 40 flips in a year its so capital intensive.. and you certainly can't start out that way you need to prime the pump and maybe in 3 to 5 years you get there.
While I agree with a lot of that, two things to keep in mind:
- If you're not doing large-scale rehabs, it should be possible to turn projects in 90-120 days pretty easily -- especially in this market.
- If you're successful and have strong track record, it shouldn't be too difficult to find private lenders will to lend 100% of the funds for a project.
I haven't had to put any of my own money into a deal for many years (though I still do), and I've been doing 20-30 deals per year for the past 8 years. So, it is possible.
Though I do agree that most investors won't get to this point for various reasons. But, they could if they stuck with it...
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@J Scott my comments were directed at someone starting out.. agreed track record breeds success. and leverage and every other type of advantage over those starting or with very limited funds. and 200k like this person Is talking about in a major flipping business is limited funds.
took me many many years to achieve the banking relationships I know enjoy.. I remember when I was groveling for my first 100k line of credit LOL...
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Austin Fruechting
Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
9y
Originally posted by @Jay Hinrichs:

@J Scott my comments were directed at someone starting out.. agreed track record breeds success. and leverage and every other type of advantage over those starting or with very limited funds. and 200k like this person Is talking about in a major flipping business is limited funds.
took me many many years to achieve the banking relationships I know enjoy.. I remember when I was groveling for my first 100k line of credit LOL...
Flipping or attracting equity partners... many people think it just happens at the beginning. How do you finance 30 rehabs in a year? How do you get investors put up all the money for an apartment buildings and get 25-40% for doing the deal? Years of experience and a proven track record.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Austin Fruechting also depends on market.. 30 rehabs on the west coast would be a 10 million plus adventure.
30 houses in KC might only be 1.5 to 3 mil just depends right ?? although there are plenty of 500 to 900k flips going on in Kc as well as we know.
but in our area there are NO 50k houses period.
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Austin Fruechting
Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
9y
@Jay Hinrichs - only turnkey providers can flip a $50k house... often with unrealistic pro-formas, lol.
The best flip potentials in KC probably sell in the 200-300k range, sometimes higher, sometimes lower. It's tough on the lower because the rehab costs aren't that much different for something selling 100-150k as they are for something to sell 200-300k.
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Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
Patrick Philip Dont be confused about my "someone else", you don't know them.
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Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
Jay Hinrichs 30 rehabs in metro cities in SoCal can easily be 20M on an average 3/2 in decent neighborhoods. Big rodeo.
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Kevin FoxPro Member
Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes
9y
Originally posted by @Eric James:
Is that 12.99% per year, or a shorter time period, and are there no points? If so, that would be a bit better. I have seen hard money offered to a REI group at 12% for 6 months with 4 points. 16% over 6 months is 32% annual.
Huh?
16% over 6 months would yield an 8% effective rate. Remember, Loans are almost always quoted in terms of their APR.
What that means is you have to find the annual interest expense, divide that by 12 to get interest expense per month, then times that by # months for total interest paid.
Effective interest rate = total interest paid/principle
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Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
9y
Thanks @Kevin Fox . IF the 12% rate I mentioned is APR, that would mean 6% interest paid for the 6 month loan period. However, points are charged upfront and are generally independent of the loan period, correct? That would mean a total of 10% paid (6% interest + 4% points) paid for the 6 month loan, which would be the equivalent of 20% annually. Am I missing something? That still wouldn't be much less than I pay for credit card interest. I'd be more interested in being on the lending side of that kind of deal than on the borrowing side.
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Kevin FoxPro Member
Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes
9y
My pleasure @Eric James!
Interest rates can get tricky with the various methods of measurement and knowing how exactly they all differ. It definitely took quite a bit of reading for me to wrap my head around as well.
As for points paid, they aren't technically INTEREST, but more so a loan origination fee (albeit a pretty darn high one lol). I always find it easier to actually look at some examples with hypothetical amounts, rather than try to understand it with just rate %'s.
So let's say $100k loan at 12% APR and 4 points for a project with a 6 month timeline. So, we first have to pay 4,000 in origination fees. Then, we calculate interest expense for each month as 12/12 = 1% per month, or $1000/month. $1000x6 = $6000 total Interest.
$6,000 intereSt + $4000 origination = $10,000 total financing costs.
$10,000/$100,000 = 10%
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