I have about $30k currently saved. One of my friends also has $10k to go into our first deal together. What strategy would you reccomend? Seller finance? 203k loan for renovations? Traditional 20% down payment?
My goal is to flip a minimum of 1-5 properties by Dec 2020. Any thoughts?
Well for flipping you either use cash, seller financing or a hard money lender. FHA 203k is if you plan to live in the property and banks generally won't do a 20% conventional loan for a flip.
@Aaron K. Great thanks for the feedback! With seller financing for clarity purposes that only works of the sellers house is free and clear correct? I would offer then a lump sum say $10k and then they would pay their mortgage still or me? Then when I finally sell the property they would get the rest of their asking price and I take home the remainder am I correct ??
@Vante'e Keena with flipping there are numerous avenues. They could do a straight sale to you with very little down and then have a balloon payment in the near future, you could partner with them and complete the flip together, the list goes on.
@Aaron K. You are right, Thank you!
You could use hard money depending on the purchase price you're looking at. If you're talking $100k and small rehab you might be able to make it work
@Odie Ayaga will look into this! Thank you
@Vante'e Keena are you able to cover $100k of unexpected issues that need to be fixed on your flip?
@Parker Eberhard wouldn't that be included in rehab costs?
@Vante'e Keena I was trying to make a point that you may need a little bigger cushion for contingency that wast in your original rehab budget. You don’t want to end up having to stop work on your flip because of lack of funds
@Parker Eberhard how much would you reccomend to have stashed away ? 100k?
That would be really tight and leaves you in a position for zero breathing room. I would suggest saving more.
@Vante'e Keena listen to BP podcast #357
@Parker Eberhard great info, thank you!
@Ian Walsh how much would you reccomend to save? I thought hard money lenders or seller finance was another option if the buyer was low on cash?
@Vante'e Keena yea..sounds like the 203k is a pain in the a** to work with
@Vante'e Keena If you are planning on using hard money, you will need a minimum of 20%-25% of the project cost in your bank account prior to buying the property. Project cost = purchase price + rehab amount. That assumes the lender will lend you 90% of the purchase price + 90% of the rehab amount. If you are buying a property for $100,000 and it needs $20,000 in rehab, at a minimum you would want to have $24,000-$30,000 in the bank.
It's difficult to say what "strategy" you should use as it depends on the deal. You don't have a lot of money so you likely need to acquire the property for 60-65% of the ARV. If you can get a contract in place and have a decent background meaning talent, track record, credit history or combination of those things you can likely find a hard money lender to loan you the acquisition cost with you using your cash to handle the renovations. Depending on ARV you may also be able to get some rehab money released if needed. I am hard money lender and discussions of hm lenders lending 90% etc. of ARV are not realistic in my experience. There may be one offs where hm lenders who have done lots of projects with an individual may get near there but they are few and far between. Good luck.
@John Cunningham I appreciate your detailed response. This answer gave me a bit more insight. Thank you!