Creative financing on a bigger scale flip

St. Louis, MO · Member since 2019 · 52 posts · 7 votes

Hey guys I'm wondering about a few different finance options on a larger scale flip.

I found a 4 bed 2.5 bath on 6.8 acres about to go into foreclosure. It's been on market around 100 days, they're asking 115k for it. I think with the time on market and the amount of work needed, I'm thinking 90k for this property with around 70k in rehab.

It has the bones to be a great sell. The almost 7 acres, in ground pool, 4 car garage, but it needs work. Fencing completely replaced, garage needs to be rebuilt only the foundation is good, yard needs to be cleaned up. Inside is not terrible, but it needs to be basically gutted and updated.

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
6y
Not sure what your question is?
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George W.
Investor · NJ · Member since 2018 · 869 posts · 921 votes
6y
A hard money lender should be able to help you out with this property. Just saying to that a 70krehab might be a tight/ unrealistic budget if you're talking about gutting an entire house and ripping a 4 car garage down to the foundation.
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Cameron TopePro Member
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Kyle Swarts I'm with @J Scott - what exactly do you need help with?
[email protected]832-770-7090
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Kyle Swarts
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St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@J Scott different options on how to creatively finance this. Partnerships, HML, a mixture of the two. Not sure how or what would be a good way to even structure that sort of deal to benefit myself and a potential investor.
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Kyle Swarts
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St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@George W. Yeah, even if it ran higher, the avg home price in my area is 185k. Those are for like 3/2s in a subdivision with a .25 acre lot. So including a 7 acre property, with anything that this place has as well. I think if you got it looking right, it could be valued at 250k or more.
Obviously I'm super noob and this might not even be a feasible flip, but I'm just looking at different scale options.
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Kyle Swarts
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St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@Cameron Tope I responded to J. But basically different possibilities to structure a deal that benefits myself and entices an investor/partner.
If you can even point me to any reading material already discussing something similar that would be helpful.
Any advice is greatly appreciated. Sorry format isweird, I'm on mobile.
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
6y
Originally posted by @Kyle Swarts:
@J Scott different options on how to creatively finance this. Partnerships, HML, a mixture of the two. Not sure how or what would be a good way to even structure that sort of deal to benefit myself and a potential investor.

Your options are largely going to depend on how much cash you have, your credit score, your income, your level of experience with flips, and how good the deal is.

If it's going into foreclosure, you likely can't use the seller as a financing option. So, your options will range from using a portfolio lender, private money, hard money or crowdfunding for debt to partnering with another investor for equity.

But, without more info, it's hard to say what all your options are.

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Kyle Swarts
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St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@J Scott that is greatly helpful, thank you. Any recommendations on reading material that could go into more depth on creative financing?
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
6y
Brandon's book is great:

https://www.biggerpockets.com/...

And I devote an entire chapter to financing options for flips in my book:

https://www.biggerpockets.com/...
Here's a quick takeaway...see Chapter 2 of the book for details...

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Amanda Kessler
Member since 2019 · 111 posts · 36 votes
6y
Your budget seems a little small, so you might want to get an estimate from a contractor before asking for a lender to give you anything.
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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
6y
Originally posted by @Kyle Swarts:
@George W. Yeah, even if it ran higher, the avg home price in my area is 185k. Those are for like 3/2s in a subdivision with a .25 acre lot. So including a 7 acre property, with anything that this place has as well. I think if you got it looking right, it could be valued at 250k or more.
Obviously I'm super noob and this might not even be a feasible flip, but I'm just looking at different scale options.

You think it could be valued at $250k? What evidence do you have to show this is not just possible, but probable? Not trying to be rude but I do want to be very clear that before you even get to financing options, you need to know your numbers inside and out on this deal, including the rehab budget which $70k does not sound like enough based on your description and your $250k exit has no comps presented to prove that is a valid exit number. I don’t know your area so I can speak to that, but it is of vital importance you either get professional help on these numbers or learn quickly how to lock those numbers in. Then you start on your financing options, not before.

Once you get there, this is not by any means a bigger scale flip so your financing options can be limitless depending on you and the quality of the spread in the deal.

Private money, hard money, conventional bank loan (if the property is in financeable condition), money partner, another experienced flipper partner, mini syndication, etc. Or any combination of these. I left out crowdfunding since you said you were new and unless the spread is a home run, I doubt it would be a candidate for crowdfunding.
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Kyle Swarts
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St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@Will Barnard appreciate the feedback. Yeah I'm just looking over options. I would never approach a lender without having as accurate of numbers as I could possibly get and then go over that just to be sure.
The 250 figure is just an estimate based on current properties around the area with less perks than this place could have. Same with aforementioned, I would never approach an investor or lender without doing an in depth analysis.
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Kyle Swarts
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St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@Amanda Kessler agree 100%. Was a rough guess, but would not proceed without getting a few estimates for the scope of work needed to make this place shine.
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Kyle Swarts
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St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@J Scott ty! I'll grab both of these!
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Cameron TopePro Member
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
Originally posted by @Kyle Swarts:
@Cameron Tope I responded to J. But basically different possibilities to structure a deal that benefits myself and entices an investor/partner.
If you can even point me to any reading material already discussing something similar that would be helpful.
Any advice is greatly appreciated. Sorry format isweird, I'm on mobile.

I would start listening to BiggerPockets podcast from show #1. Then read ALL the book recommendations that podcast guests make. You'll be equipped with plenty of knowledge to get started.
Best of luck!
[email protected]832-770-7090
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Kyle Swarts
OP
St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@Cameron Tope I'm actually currently on episode 95 and just put in an order for brandon and J Scott's books. I've learned a lot, but there is a big difference in hearing/reading and applying it to a real life scenario. The "analysis paralysis" is very real. I want to pull the trigger, but I also want to minimize my risk as much as I possibly can. I know its NEVER risk free, but with enough prep work you can make educated reduced risk investments.
I'm also really interested in multi family/house hacking, but I need more capital to fund that first FHA. This is where my interest in flipping comes into play using HML, private money, etc. I want to be as knowledgeable and prepared as I can before pitching anything to anyone. I want to be upfront and honest about my experience, but let them also know I'm putting in the effort to learn before acting.
Appreciate the feedback!
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Cameron TopePro Member
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
Originally posted by @Kyle Swarts:
@Cameron Tope I'm actually currently on episode 95 and just put in an order for brandon and J Scott's books. I've learned a lot, but there is a big difference in hearing/reading and applying it to a real life scenario. The "analysis paralysis" is very real. I want to pull the trigger, but I also want to minimize my risk as much as I possibly can. I know its NEVER risk free, but with enough prep work you can make educated reduced risk investments.
I'm also really interested in multi family/house hacking, but I need more capital to fund that first FHA. This is where my interest in flipping comes into play using HML, private money, etc. I want to be as knowledgeable and prepared as I can before pitching anything to anyone. I want to be upfront and honest about my experience, but let them also know I'm putting in the effort to learn before acting.
Appreciate the feedback!

Then I have good news! You have more than enough knowledge to get stared.
It's not your lack of resources at this point that's holding you back, it's the lack of resourcefulness. There's plenty of money out there. Go out and find it. Screw up (minimize the downside as much as possible). Learn and improve. Then you'll be well on your way to being a successful investor.

[email protected]832-770-7090
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Kyle Swarts
OP
St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@Cameron Tope thank you for the encouragement and I 100% agree. I thought by about episode 30 I could do a successful deal.
My main concern is lack of knowledge on expenses for rehab materials and labor. I dont want to be takin advantage of.
I posted something earlier, but will realtors happily give you access to an automated MLS service? I'd like to browse deals without bothering them too much before finding something I'm actually interested in.
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Cameron TopePro Member
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
Originally posted by @Kyle Swarts:
@Cameron Tope thank you for the encouragement and I 100% agree. I thought by about episode 30 I could do a successful deal.
My main concern is lack of knowledge on expenses for rehab materials and labor. I dont want to be takin advantage of.
I posted something earlier, but will realtors happily give you access to an automated MLS service? I'd like to browse deals without bothering them too much before finding something I'm actually interested in.

You'll always have a lack of knowledge in some areas - I still do! You can't know everything.
Just get a few bids from different contractors and then you'll know if someone is jerking you around.
A realtor can't give you access to the MLS, at least not in Houston, as it's a violation...
[email protected]832-770-7090
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Kyle Swarts
OP
St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@Cameron Tope luckily domt have that problem in MO with the MLS.
I've been searching redfin last couple days and I've favorited a few deals that sold within 48 hours of me looking at them. So I think I'm atleast able to see potentially good properties.
Yeah, I know contractors can give you bids, but it's all about speed sometimes it seems. So knowing a bit more in that aspect would be helpful to lock down those potential deals with more certainty around what the ARV would be. Just need that experience!
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Cameron TopePro Member
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
Originally posted by @Kyle Swarts:
@Cameron Tope luckily domt have that problem in MO with the MLS.
I've been searching redfin last couple days and I've favorited a few deals that sold within 48 hours of me looking at them. So I think I'm atleast able to see potentially good properties.
Yeah, I know contractors can give you bids, but it's all about speed sometimes it seems. So knowing a bit more in that aspect would be helpful to lock down those potential deals with more certainty around what the ARV would be. Just need that experience!

Agreed, you'll need speed to close the deals but start getting bids now, even on properties you won't get. That way you can get a good feel for what things cost then estimate a little cushion on the deals you want to bid quickly.
You can always go back to the seller and ask for a reduction if your contractor bids are over what you expected.

[email protected]832-770-7090
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Kyle Swarts
OP
St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@Cameron Tope appreciate the tips and conversation!
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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
6y

Some food for thought on the above message: As a contractor, I would not be too happy giving bids on projects where the client had no intention of buying that home as it would be a waste of my valuable time. I think it is important to respect the time of others as they should respect yours and not waste it. Better to spend lots of time at the big box stores getting to know what lumber, drywall, paint, interior doors, base and case, windows, cabinets, toilets, tile, etc cost. Many of the box stores also have installation prices on specific items like interior doors and flooring. This will give you a good idea of costs without having to get an actual hard bid from a contractor. Obviously there is a lot more too some rehabs than others so this is not a complete list.

One piece of advice I have given countless times on BP Nation here is to get a good idea of costs by sections of the home. For example, if your calculate a full gut and rehab of a full size bathroom will cost you say $7k, and a standard L kitchen with cabinets, counters, appliances, and hardware cost you say $12k, and windows with install cost you $400 each, then you simply walk through a home knowing these rough figures and add them up as you walk through it. Doing this over and over again at open houses of listed properties will give you enough practice to be good enough at it to make your own rehab budgets for basic rehabs.

As far as making the offer then re-trading the price after, be careful here too. Do this too many times and you will develop a bad reputation throughout the agent arena and agents will start talking about you to others. It’s a small world out there and you want to have a good reputation, not a bad one. Better to get your numbers more accurate from the start, trying to re-trade the property because you miscalculated at the start is not going to fly with any experienced agent representing the seller.
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Cameron TopePro Member
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
Originally posted by @Will Barnard:

Some food for thought on the above message: As a contractor, I would not be too happy giving bids on projects where the client had no intention of buying that home as it would be a waste of my valuable time. I think it is important to respect the time of others as they should respect yours and not waste it. Better to spend lots of time at the big box stores getting to know what lumber, drywall, paint, interior doors, base and case, windows, cabinets, toilets, tile, etc cost. Many of the box stores also have installation prices on specific items like interior doors and flooring. This will give you a good idea of costs without having to get an actual hard bid from a contractor. Obviously there is a lot more too some rehabs than others so this is not a complete list.
One piece of advice I have given countless times on BP Nation here is to get a good idea of costs by sections of the home. For example, if your calculate a full gut and rehab of a full size bathroom will cost you say $7k, and a standard L kitchen with cabinets, counters, appliances, and hardware cost you say $12k, and windows with install cost you $400 each, then you simply walk through a home knowing these rough figures and add them up as you walk through it. Doing this over and over again at open houses of listed properties will give you enough practice to be good enough at it to make your own rehab budgets for basic rehabs.
As far as making the offer then regarding it after, be careful here too. Do this too many times and you will develop a bad reputation throughout the agent arena and agents will start talking about you to others. It’s a small world out there and you want to have a good reputation, not a bad one. Better to get your numbers more accurate from the start, trying to re-trade the property because you miscalculated at the start is not going to fly with any experienced agent representing the seller.

Will,
Agree, we have to respect folks time but its part of a contractors job to bid work. Maybe the contractor won't get that job but they'll get the one the newbie wants to close on. As a newbie investor, you need to be comfortable spending your valuable money, and if that means several bids (within reason) then that's what you need to get. Walking home depot can give you a good idea of costs but if you're new then you won't know all that a rehab entails until you get a few bids and walk houses.
I want to make it abundantly clear that we do not (and I'm not advising people) to make offers then ask for a reduction as part of your normal sales process. However, if I didn't notice something that the inspector or contractor caught then I would have no issue going to the seller to ask for a reduction.
If you're using the reduction as a "bait and switch" tactic then I agree that's 100% unethical but that's not what I was recommending above.
[email protected]832-770-7090
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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
6y

While I agree doing bids is part of a contractors job, I do not agree that it is fair or reasonable for a contractor to be expected to provide free bids on job sites they have not chance of getting the work on. My point is, getting bids from contractors is really not the best way for a newbie to learn how to estimate rehab costs. Learning these costs from shopping at box stores and walking many many homes needing repairs and practicing is what helps one learn.
As to your last comment regarding re-trading purchase amounts, I’m happy to hear you agree that the bait and switch is not a good practice, however, your original post stated that IF your contractor bids come in higher than expected, you can renegotiate. This is where I disagree as the buyer should have these figures accurately prior to making the offer, it is one thing to find hidden items, it is another to renegotiate simply because the buyer underestimated the costs from the beginning. This is what can generate a bad reputation for the buyer.
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