Rental Property Investor · Edmond, OK · Member since 2019 · 31 posts · 9 votes
I am financing my first flip with my own money. I took out a Loan on my 401k and paying myself 6.5 interest. I also took out a Heloc on my home at 4.5 interest. I also have a 14 month zero interest Credit card to buy most of the supplies/appliances with 2% cash back. My thought was this would greatly reduce holding and closing costs. If all goes as planned this will generate 22% immediate ROI. Experienced ladies and gentlemen feel free to critique me. I love constructive criticism. Makes us all better. Thanks!
Financial Advisor · Blaine, MN · Member since 2014 · 477 posts · 387 votes
7y
@Allen Smith Seems like this could be an good plan...
What if this first flip is an absolute nightmare and you lose $25k or something? In that situation are you still able to pay off the Credit Card and 401(k) loan?
Just about anything can be a good source of financing as long as you can live with the worst case scenario.
Financial Advisor · Blaine, MN · Member since 2014 · 477 posts · 387 votes
7y
@Allen Smith Seems like this could be an good plan...
What if this first flip is an absolute nightmare and you lose $25k or something? In that situation are you still able to pay off the Credit Card and 401(k) loan?
Just about anything can be a good source of financing as long as you can live with the worst case scenario.
Rental Property Investor · Edmond, OK · Member since 2019 · 31 posts · 9 votes
7y
@Scott Jensen. Worried about the same thing. Yes I have cash on hand to handle if everything goes bad. The exact reason I didn't get into liquid assets. Another reason we didn't go conventional on this one was multiple offers and needed to close quickly. Thanks for the insight. Understand I'm going to make mistakes on the first one.
I am financing my first flip with my own money. I took out a Loan on my 401k and paying myself 6.5 interest. I also took out a Heloc on my home at 4.5 interest. I also have a 14 month zero interest Credit card to buy most of the supplies/appliances with 2% cash back. My thought was this would greatly reduce holding and closing costs. If all goes as planned this will generate 22% immediate ROI. Experienced ladies and gentlemen feel free to critique me. I love constructive criticism. Makes us all better. Thanks!
It's a great idea and you can save money, just make sure you have enough money to cover if things go over budget. Your financing options are more limited if you run out of money in the middle of the project vs finding funding on the purchase. I work in Hard money and get calls every day from people who self funded and ran out of money mid rehab cause they found black mold or had to rewire house unexpectedly or just underestimated things.
Also think about if it goes great you finish the flip and list it, and are ready to move to the next one. All your money is still in this deal until you close with buyer who likely will have a 30 to 45 day closing conventional loan, and you could potentially miss other deals.
Rental Property Investor · Edmond, OK · Member since 2019 · 31 posts · 9 votes
7y
Thanks @Caleb Jordan. Just got an offer accepted on a second flip today. Funding it with a conventional loan that is also going to fund the rehab with 20% down at 5.25. Is this a good funding plan for a flip? I still have cash reserves if I go over budget. That was my plan to not use any of that in case they don't sell quickly. Thanks for the input. Don't want to think about a 3rd yet until I close on at least one of these. Getting good reasonable contractors is what is keeping me up at night. I have estimated my costs with @J scott book on estimating rehab costs. Have 3 set up for next week to give me estimates.
Lender · Arlington, TX · Member since 2018 · 465 posts · 184 votes
7y
If you are able to get a conventional loan at that low interest it is a great option. I dont know all the ins and outs of your situation, but it sounds like you are allowing yourself some wiggle room.
Often house flippers have a hard time using conventional loans because the loans take longer to close than a seller wants or they can't qualify with the income or dti requirements and they have to use more expensive options. But conventional is great option when you can get it.
Lender · Chicago, IL · Member since 2018 · 352 posts · 147 votes
7y
@Allen Smith why going thru all that trouble when you can do a renovation loan ok conventional market, either FHA owner occupied with 3.5% downpayment on a 1-4 units or FannieMae HomeStyle for investment properties, 15% downpayment
Rental Property Investor · Edmond, OK · Member since 2019 · 31 posts · 9 votes
7y
@Diana Muresan This is something I am not very familiar with. We cannot do the owner occupied. Does the Fannie Mae finance rehab as well? Giving me something to think about. Thanks
Lender · Chicago, IL · Member since 2018 · 352 posts · 147 votes
7y
@allen smith yes, Fannie HomeStyle allows investment properties, 15% down, 1 unit, you can refi or sell after the reno, you can also roll the mortgage payments Into the loan amount during renovation if the house is uninhabitable.
Manheim, PA · Member since 2016 · 131 posts · 138 votes
7y
I use my heloc a lot to purchase flips, saves me a ton of green. If the deal goes sideways, you could always rent it out, refinance with a bank recooping most of your losses.
Biggest way you will lose money would be in the rehab, either over paying or not estimating your rehab repairs properly. Or a combination of them both.
Also be sure not to overlook closing costs, taxes, holding costs, utilities etc.
Rental Property Investor · Edmond, OK · Member since 2019 · 31 posts · 9 votes
7y
Good call out @Gareth Fisher. CC, taxes and holding cost are figured in. Utilities I did not. Rehab costs are my concern, but get quotes, find someone you like when it is over, and get better. Have 2 we are doing so going to use different on each. Thanks!!