First-Time Flip Financing Advice

5 Replies

My wife and I have rehabbed (mostly cosmetic) both of the properties we have purchased. They were both live-able and for our primary residences at the time so we used conventional financing. We enjoyed the process, kept our first as a rental and are at a place where we can begin investing and are interested in either a flip to sell or flip to own.

It seems like everything in the marketplace is for cash sales and while we have about $30K at our disposal, it seems that this would cover the rehab budget in the deals we have been interested in. We have excellent credit and no debt except for our 2 mortgages. (Rental and primary)

Does anyone have any tips in financing their first flip deal?  

Hi Andy.....familiar spot for many flippers.  You'll more than likely need a hard money lender to help you get the deal done.  They are generally looked at the same as cash for those deals that are as-is or won't accept conventional financing.  Rates are higher.....probably 10-14% currently.....but they cover anywhere from 60-90% of the total deal depending on the lender and the deal.  Some charge points on the front end as well as fees, etc., and maybe a little on the back end.  But if the numbers work out on a deal, they're well worth it.  As an example, the first hard money flip I did, the total profit was about 18K on about $115K total investment.  The hard money lender put up about $95K of the total deal, but also took about $6500 of the profit in interest, points and fees, leaving me with the remaining $11-12K .  Still not bad for both what I had to put up and also the total return on the deal.

I've used a couple of different ones for deals I've done in the area and feel free to PM me and I can give you more info.  Not sure what the rule is here for recommending lenders. 

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You're looking at hard money to get this done.  They will want to see your liquidity at having enough cash to be able to pay 6-12 months of interest.  There are many different loan programs so ask around, but you should have no problem finding around 65% purchase price, and 100% of rehab costs.  This also depends on the appraised value of the unimproved property and the deal parameters.  Ask around your local investor meetings for names of reputable lenders, you will often find the same names mentioned, and if someone asks you for up front fees then run in the other direction.

@Andy Zapata

Howdy local investor! My first two deals I used a line of credit. After that, I used local community banks and put 20% down, then hard money 20% down, then 100% hard money, now private. It is a progression. If your credit is good community bank money is affordable. Not as easy as hard money but worth looking into. 

Conventional financing is certainly cheaper but it takes a much longer loan process and is more paperwork cumbersome. Most rehab deals need to be all cash which puts an offer with conventional financing at the back of the line as far as sellers are concerned. 

Hard money is certainly an option, but most hard money lenders will only fund up to 80% of the purchase price. So your $30k would need to go to that and then you still need to finance the rehab. Some HML also supply rehab funds in draws but you need to spend before you get.

Private financing is your best bet but you need to sell family/friends/misc contacts on your business plan and how you will pay them back. Since you have a bit of experience, you can use that to pitch your next deal to raise private money.

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