Quick question - how did you finance your first deal? I am in the process of looking to flip my first home and would like to know how you financed your first flip. Additionally, has anyone done a hard money loan? If so what are your thoughts (pros & cons).
@Ti Jackson You can go about this a number of ways depending on your financial situation:
1) Line of Credit off of your personal residence - You need to have a good amount of equity in order to use this to fund your entire flip. If not a lot of equity then can still use it as down payment/reno costs
2) Hard Money Lender - The one I use doesnt require you to put down cash but will put a second position lien on your personal residence as your "skin in the game" - So if you dont have a lot of cash this is a good way to go. However, your flip needs to have enough earning potential to cover the HML's high points (fee) they charge at closing and gets rolled into the loan (3-4% of total loaned amount).
3) I did my last flip with putting a conventional 30 yr fixed and paid the down payment and reno costs in cash/LOC. But the lenders Ive talked to recently have been stating that in order to get that loan again the property must be in "livable conditon" at closing. And if you are flipping the property is most likely distressed.
Let me know if you have anymore questions on what I stated. Good luck!
@Ti Jackson My first deal was with a HELOC I took out on my rental property since the current loan on it is 40% LTV. With that, I did cash to purchase then refinanced with a hard money lender. I have a love-hate relationship with hard money lenders. They are very expensive with a lot of upfront fees that equate to over 20% on an $85k all in the deal. I like the smaller lenders since it is more personal and they try everything they can to close the deals. I do not recommend patch of land, after having the report for a week they requested and engineers report the day before closing because the pain on the exterior was chipped.
I personally would prefer to do my deals with a private lender at 20% rather than a hard money lender, but you need a track record with real estate before you can attract the attention of one.
My first flip did not happen until I had wholesaled about 5 houses. I was looking to start a deal flow to get good deals coming my way. I wholesaled some until I found a great rehab that was right for me.
I had little money so I borrowed some from a relative, charged up the credit cards for the rehab but took the property sub-to. Sold it quick and did the same thing again.
When I came across a great rehab that needed cash or hard money, I got hard money. It was back in 2004 or 2005. Paid 18% and 4 points. I was so happy that someone would lend me money with no job. I was ecstatic. Ended up making about 25k on the deal. If the deal is good enough I would not worry too much about the interest rate. Nowadays rates are about 10% to 12% with a couple of points.
Use a hard money lender that is local. Preferably one that goes to your local REIAs. This way you can get recommendations from other users.
I spoke with a local bank that gave me an in-house commercial loan. In-house just means they don't sale it to another bank, so they can be a little more lenient with the requirements. I was able to finance up to 80% of the after repair value. Additionally, I only take what I need on a line of credit. That helps because I am only paying interest for the first year (commercial loan), so my first couple of payments were very low (double digits). This was my first time to flip a house and I think this was the best way for me because I don't really have a solid system like the pros, so I tend to take longer getting things sorted out. (Why don't plumbers ever answer their phone?) I've heard local credit unions are even more lenient on their loans. Worth checking out!