Closing and Holding Cost

6 Replies

Hey Guys,

Im a noob trying to get a good idea of any cost that might jump up in the middle of a project.

Are ALL of the holding and closing cost (buying and selling) usually financed through the hard money lender or whoever, or does some of or all of that come out of the investors pocket for a quick fix and flip?

Like points, interest, insurance, taxes..etc (anything)

Not sure of your question.

Are you asking if the lender gives you the funds that cover your closing costs? 

Hard money lenders will loan a certain amount of money for the rehab, and a certain amount for the purchase of the home. From what I've seen, all of the other expenses are on you. You'd have to pay for holding costs with your own money, and pay the loan to the hard money lender concurrently.

Originally posted by @Bob Okenwa :

Hard money lenders will loan a certain amount of money for the rehab, and a certain amount for the purchase of the home. From what I've seen, all of the other expenses are on you. You'd have to pay for holding costs with your own money, and pay the loan to the hard money lender concurrently.

I've never done a real estate deal but I really want to jump in the ring and get some experience. I've read the books, watched the videos, listened to the podcast, took the courses.... blah,blah,blah.  In my opinion, 99% of what is being taught is find a great deal, present it to the lender and they fund 100% of your project! YAY!  GC and subs go to work on your property and in 6 months you sell that sucker for a hefty profit. That sounds wonderful but the more people I talk to, the more I understand that isn't the way it goes and the actual out-of-pocket cost can get pretty high. In your experience, is it common or possible for the guy that has no experience, no savings, bad credit, living paycheck to paycheck to complete a fix and flip?

It's possible, but you'd have to get pretty creative and probably have some good luck along the way. HML's will not fund 100% of the deal unless you have a great track record with them in pretty much every case. You may need to find a private lender at a REIA meeting and see if they will partner with you, or get JV deal going where you can bring someone a deal, and in return they get like 60% of the profit or some other kind of split that is beneficial to them. Gotta think outside the box when you don't have the funds to do a deal on your own.

Hi Devinn,

"In your experience, is it common or possible for the guy that has no experience, no savings, bad credit, living paycheck to paycheck to complete a fix and flip?"

It’s not impossible but it is very hard. I like to have a safety fund for just in case.

You asked what cost can jump in the middle of a project.

Holding cost - contractor says it will take 2 months and ends up quitting or taking 2-5 months (with no savings or emergency funds you’re in a pinch)

Fix up cost - it’s all good until walls start coming down. One second electrical and plumbing are fine, the next it’s not and it cost an additional $10-$20k or it won’t pass inspection, i don’t see any mold, oh wait the old owner used drywall in the bathroom which needs to be replaced and mold in behind the walls and bedroom connecting to it is full of mold.... there are a lot of unforeseen problems that can happen. Make sure it’s all budgeted or you have some kind of contingency fund in place.

That’s just off the top of my head.

Most lenders want you to have some skin in the game so getting 100% financing unless you are using 2 or more loans from different institutions and putting that money together, you need to put some money down.

I’m not saying its imposable but try and put yourself if the lenders position. If you were a lender and had $200k of your money, would you loan it to someone with no experience, no savings, bad credit, living paycheck to paycheck?

Let’s work on that first before diving in head first, save 10k for a DP or closing, and build back your credit a little. Try and make yourself look great to a lender as that will also affect what interest rate you’ll have.

Just my 2 cents, hope it helps. msg me if you want to chat more.

Phillip Faries

Thanks a lot for your input guys. It is definitely helping me understand what I'm trying to get myself into. You confirmed what I was thinking, which is (A) It could and probably will take some cash out-of-pocket to complete a project, and (B) Getting financed is going to take a bit more than just finding a great deal.

I've recently joined a local REIA and look forward to going to their next meeting with the hopes of further education on the subject and perhaps even a partnership. I'm also working on a savings plan so I can get some skin in the game and building credit so I am more attractive to lenders.

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