My million dollar first flip

15 Replies

I live in the SF Bay Area and have been through lots of renovations (5 properties) through the years, but I’m working on getting my first real flip and use of a private money lender.

I’ve raised 1.1 million but need to raise the remaining 150K. I’ve put many requests into private lenders but haven’t had luck.

Can anyone recommend a strategy to raise the remaining fund in next few days? Ive already considered credit cards and family and friends.

Why are your existing lenders hesitant to increase the amount they're lending by 10%?  If they all do that, you'll have the needed funding...

or equity partner.. split some profit.. instead of not doing the deal at all.

Account Closed, If you have or know a good broker, some of the folks who have been in the business longer have access to private money. Of course, they would probably want you to list with them after the completion. Given the market conditions, you might also be hitting a lot of cautious investors/lenders, so you'll have to show it's a pretty bullet proof deal. There are a couple banks that might be more flexible, but depends on your balance sheet, and you'd likely have to extend the close. Final option is to go back to the seller and tell them the lenders are reluctant and try to renegotiate the price down. Buyers have a little more leverage right now versus early last year.

well as @J Scott said and especially if your doing a true JV the partners need to come up with the 10% or no one does the deal.. I understand though if the money wants YOU personally to have 10% of skin in the game.. that's pretty common.

normally how we see these larger west coast deals is you have HML in at an interest rate with 70% and you bring in Gap funding or JV partner for the 30% and you contribute whatever you guys agree on.

gap partner should make equity since they are taking big risk behind a large first mortgage..

Originally posted by Account Closed:

@J Scott

They already in it 90%. I’m trying to raise the remaining 10%. Because I recently bought 2 properties this year, I’m out of liquid

Some simple math to provide the perspective of your private lenders:

If they lend 100% of the funds, and the value of the property drops even $1, their collateral no longer has equity and they are at risk of losing money.

Given the current state of the market, especially in high value areas like CA, the potential for values to drop over the next 12 months is significant.  I wouldn't lend 100% on a deal in any market right now, let along a high-end market.

I would recommend trying to raise the money personally -- credit cards, HELOC, friends/family, etc. It's unlikely a professional lender will be willing to help.

Originally posted by @J Scott :
Originally posted by @An Lam:

@J Scott

They already in it 90%. I’m trying to raise the remaining 10%. Because I recently bought 2 properties this year, I’m out of liquid

Some simple math to provide the perspective of your private lenders:

If they lend 100% of the funds, and the value of the property drops even $1, their collateral no longer has equity and they are at risk of losing money.

Given the current state of the market, especially in high value areas like CA, the potential for values to drop over the next 12 months is significant.  I wouldn't lend 100% on a deal in any market right now, let along a high-end market.

I would recommend trying to raise the money personally -- credit cards, HELOC, friends/family, etc. It's unlikely a professional lender will be willing to help.

we are certainly not participating in any highest and best these days..   as you know the lux market or high end market has a 10% movement that could be 200k..  its all about the buy right now.. 

and not getting caught up in the herd mentality..  low end for rental purposes is still perking along nicely though.. but those properties are pretty much sold like MF .. they bring what an investor is willing to pay for a given cash flow and those smart enough will factor in risk. of asset class 

Account Closed, I try not to be negative on BP (there's enough of that going around), but the more details you post about your situation, the more I'm concerned if you are overextending yourself given the market conditions. Is this a San Francisco flip or somewhere else?

Originally posted by Account Closed:

I live in the SF Bay Area and have been through lots of renovations (5 properties) through the years, but I’m working on getting my first real flip and use of a private money lender.

I’ve raised 1.1 million but need to raise the remaining 150K. I’ve put many requests into private lenders but haven’t had luck.

Can anyone recommend a strategy to raise the remaining fund in next few days? Ive already considered credit cards and family and friends.

I'm going to be blunt, but if hard money lenders are not willing to lend you 13% of the project against 87% of equity i would seriously question the feasibility of your project. You may find investors here on BP but imo any project that makes sense gets institutional funding; if you don't, it means you are either overextended or your project is flawed and the risk reward ratio unfavorable. The CA market is high risk right now and lenders are getting conservative. If you don't have a track record and can't prove your project will margin minimum 25% you will have a very hard time finding institutional funding. Many investors are on the sideline now waiting for a the market to show a clear direction. The CA residential market could easily tank 15-20% (or not) this year so i'd be very conservative and only select safe projects with high profit margins 

On another note, if the tech stocks bubble bursts this year the CA real estate market and particularly the bay area could take a serious toll 

Account Closed, I'm reading between the lines a bunch because there's limited information here. But, you said you just bought two properties this year, no liquidity, and can't come up with $150k for a >$1mm property. I assumed that money is to close the deal since you're trying to obtain the cash in a few days. If that's the case, then where's the remodel budget coming from? Even if you did set aside some money for remodeling, it doesn't sound like you have reserves for the unexpected stuff, plus it's your "first real flip". 

I'm not saying people don't do flips here with 100% financing successfully. However, the margins overall are pretty thin - especially with all financing, unless you get a smoking deal. Many flippers benefitted from the crazy appreciation, which has made their deals look better on paper. Flippers just hit a wall this past fall when there was too much inventory and less demand causing a 10%-20% decrease on the back end depending on the market, and that situation has yet to resolve itself. 

Some people are using this recent blip as a buying opportunity, but it's still a risky proposition in my mind until we see how the spring turns out. 

Now, maybe this deal you have lined up is a superstar and totally underpriced.  That would be great. If it were me, though, given the current uncertainty, I would take such a deal and just turn around and sell it for a quick profit without spending the time on fixing it up.

@Account Closed Idk the high end market out there but is it even a real possibility for a lender to lend 100% on a flip property over a million dollars to someone who isn't really very experienced? Seems incredibly risky to say the least.