Best loan for rehab and flip

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Mauricio Florian
Lender · Member since 2019 · 18 posts · 2 votes
3y

Hey Christine, I hope you are well. It is all about your situation, if you have enough cash reserves to cover down payment which usually are 20-25% down, approximately 1% of total loan amount to cover closing costs and points. I wouldn't recommend using your primary residences equity but if you don't getting a home equity loan would be the ideal option to help you get started with getting the funds to purchase your first fix and flip. If you have any additional questions or are interested in discussing your options please send me a direct message. 

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  • Mauricio Florian
    Lender · Member since 2019 · 18 posts · 2 votes
    3y

    Hey Christine, I hope you are well. It is all about your situation, if you have enough cash reserves to cover down payment which usually are 20-25% down, approximately 1% of total loan amount to cover closing costs and points. I wouldn't recommend using your primary residences equity but if you don't getting a home equity loan would be the ideal option to help you get started with getting the funds to purchase your first fix and flip. If you have any additional questions or are interested in discussing your options please send me a direct message. 

    1Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y
    Quote from @Christie Walker-thompson:

    I am starting the journey of flipping my first property and would like to know the best way to secure financing to purchase and rehab a property? We have enough equity in our current home to use but is that the best way? Thanks!


     This is generally where you'd go with a hard money lender

    Plenty of good options in the BP Hard Money Lender directory: https://www.biggerpockets.com/...

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  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    The best way is by using the best debt. If taking out the equity in your home allows you to secure the cheapest debt and you have a plan for repaying it in the short term than do that. 

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  • Kelsey Jurewicz
    Lender · Fort Lauderdale, FL · Member since 2023 · 33 posts · 19 votes
    3y
    Quote from @Christie Walker-thompson:

    I am starting the journey of flipping my first property and would like to know the best way to secure financing to purchase and rehab a property? We have enough equity in our current home to use but is that the best way? Thanks!


     Hi Christie,

    Not sure if you've heard of a 203k rehab loan, but this allows you to purchase a property and wrap all of the renovation costs INTO the mortgage, so it's one loan.

    let me know if you have any questions.

    0Reply
  • Christie Walker-thompson
    OP
    Member since 2023 · 6 posts · 3 votes
    3y

    So will a typical bank use this type of loan on an investment property?

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  • Darnell Lockett
    Real Estate Consultant · Miami · Member since 2023 · 165 posts · 62 votes
    3y

    There are quite a few loans available for fix and flips. There are lots of PML's that specialize in these loans.

    0Reply
  • Michael Kinsella
    Lender · Member since 2018 · 617 posts · 275 votes
    3y

    There are a few different debt financing options when it comes to fixing and flipping an investment property;

    1) Local banks: These will often provider a cheaper cost of capital (interest rate, origination fees) than other lenders, but their underwriting guidelines are generally more stringent, and since banks aren't set up for the express purpose of financing fix & flip borrowers, they can sometimes be more slow moving. Also, some banks will be reluctant to lend on fix & flip projects.

    2) Hard money lenders: Hard money lenders, in contrast, are set up for the express purpose of financing real estate investors. Their cost of capital will generally be significantly higher than a local bank, but they tend to move faster and be less stringent in their underwriting guidelines.

    3) Private individual lenders: These are individuals that operate similarly to hard money lenders. Often, they can even offer greater flexibility.

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  • Rob BeemanPro Member
    Specialist · Philadelphia, PA · Member since 2010 · 301 posts · 118 votes
    3y

    @Christie Walker-thompson Using "other peoples money" can be a leverage tool when investing. This reduces the amount of money that you personally have in the venture, however the use of that money comes with a cost, and strings. Most rehab style lenders (what some people call hard money) will issue the loan to an entity (an LLC) and the member(s) of the LLC are the additional guarantors.

    The lender will typically want to see that you have money in the deal (sometimes called "skin in the game" - HATE THIS PHRASE, but it is used often in the business). The lender normally wants your cash to come from either checking/savings or retirement accounts (up to 50% of the account balance), or a combination of them. They normally frown on you borrowing the money to fulfill your cash needed in the deal (they see it as creating a loan to create their loan....not good). Not unusual for the lender to request the last 3 month's bank statements and if they see large deposits, they will seek the source of them. So, if you chose to gain some of your cash in the deal from a HELOC and it was deposited into your account beyond 3 months ago, then there would be no questions. Still said, you are borrowing in order to borrow again, and not certain that is the wisest use of other people's money, but its your call.

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  • Christie Walker-thompson
    OP
    Member since 2023 · 6 posts · 3 votes
    3y

    Thank you.

    0Reply
  • Christie Walker-thompson
    OP
    Member since 2023 · 6 posts · 3 votes
    3y
    Quote from @Christie Walker-thompson:

    I am starting the journey of flipping my first property and would like to know the best way to secure financing to purchase and rehab a property? We have enough equity in our current home to use but is that the best way? Thanks!

     Thanks to everyone who has responded to my post. You all were very helpful. 

    0Reply
  • Christie Walker-thompson
    OP
    Member since 2023 · 6 posts · 3 votes
    3y

    Thank you.

    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    2d

    Hi Christie,

    It may make sense to use a HELOC for reserves/rehab budget and use private money for the purchase.

    [email protected]818-269-7983
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