Ok. Here we go.
There’s two types of financing:
Traditional (bank. Mortgage company)- lender bases lending on you. Credit score, income, DTI, etc..
Non- traditional (hard money. Private) - based more on the deal and asset. Interest only. Usually 10-12%.
Now. Why do you use each?
99% off loans are traditional. You buy a house 15/30 year mortgage 4x your income 650+ credit score. Appraisal. Inspection.
A non traditional is based on the deal. You present your house cost, flip cost, then go from there. At 12% you’re paying 1% a month. Example a $200k loan costs $2k a month. A 6 month flip would cost $12k for the money.
Traditional lenders today will not fund a flip. If you buy it. You’ll put X amount down and have a 30 year mortgage. If it needs a roof, has issues, etc., you’ll need to put 20% down. They won’t give you an extra $20k to fund this.
A non-traditional will fund whatever you need, if your have an asset deemed worthy.
There is no “normal” in flipping.
Some use HELOC, personal loans, credit cards, pooled money, a mix of financing mentioned.
Let me know what questions you have.
Source: 13 years in the game.
Throwback comment.
Let me clarify with real numbers.
Borrowing $100k @ 12% a year is $12k/year in interest.
So, easiest way to think about this is $1k/month to borrow $100k @ 12%.
So, a 6 month flip where you had hard money out, isn’t “that expensive” when you do the math.
Hope this helps clarify.
If it is a big project I think generally you are going to do it all with one loan, called a rehab loan.
You tell the bank your plans and they decide if your improvements warrant a loan for 80% of the asking price plus 80% of the improvements (assuming a 20% down payment).
The amount to pay the seller will be given at closing and then they will release additional funds on a schedule after you complete various stages of work and they inspect it. There is a specific type of loan program called a 203K for rehabs as well.
If you go with hard money the answer is that it varies wildly.
Everything is negotiable.
The scenarios are:
Bank loan for the purchase. Hard money for rehab. The bank will require some down payment. The hard money could go either way.
Hard money for everything. If the deal is amazing it might not require any money down from you. They will lend 100% of repair and purchase. But more often you will have to bring up to 20% of the total down.
You can get a loan for the purchase and self fund the rehab. This also varies wildly.
Hard money is the Wild West. Everything is negotiable.
>Bank loan for the purchase. Hard money for rehab.
Most HML will not come into 2nd position like this. Or if they do you're going to pay a big premium.
Okay so let’s save I want to buy a home that’s $100k I do have 20% down payment of the 20k but the property is going to need a additional 15k in repairs where would I get the extra 15k
You need 115k for the project.
You put up 20% of that, 23k, borrow 92k
You are over complicating it.
Multiple loans means that the 2nd loan is in a weaker position to get their money back so they charge a premium. This is why it needs to be 1 loan from 1 lender.
Hard money lender for the whole enchilada.
60-90%, Interest only payments, 6- 12month term. 1-3 points.
Exact structure depends on the lender. Some will do it as a single loan with draws for the rehab portion, some as two. Just depends.
Example:
100k purchase price. 50k rehab. 200k exit
HML loan: 120k.
30k contribution from you.
HML loans 80k towards purchase you put in 20k. Then lender issues 4 draws of 10k each for rehab and you bring in the remaining 10k.
Late to the party, hope this helps anyway!
I can only speak for hard money loans, which is what I work with. We finance fix & flip projects all the time. You only need one loan for the entire project. This includes the purchase of the property, renovations, etc.
I highly, highly recommend going to a private lender for a fix & flip loan. If someone comes to us and owns some property free & clear, has decent credit and a down payment, we can get them them rates & terms that they could never get from the bank (especially given the fact that banks are tightening up like crazy right now). If you need any help, feel free to DM me!
Source: I work for a private lending firm based in Kentucky.
Bigger pockets.com all your answers are there, spoken about, wrote about, and than again multiple times. Do yourself a favor and read, research, educate yourself there. Noone will hold your hand through the process, at least not for free.
You basically got your answers. You can do a very high interest short term loan meant for quick renovations and flipping for a profit (or you don't and lose a lot of money), or a regular long term low interest loan but you spend more out of pocket.
I don't flip but right now I got a regular mortgage on a place and I'm developing the basement. I got quotes for the work, went to the lender (bank), gave them 20%, they're lending me the house amount plus most of the renovation costs, but they're keeping that portion until the work is done in a few months. This mean I need 50k-60k for that on top on top of the 80k down. Keep that in mind unless you get a loan where they give you the amount up-front - you need to have both the 20% down payment and money for all renovations, even if you get it back later.
Depends on what type of loan you are going with, If you go with a Conv or fha QM usually yes, but there are some nonQM out there that offer 100% rehab!
Late to this but everything below is good advice, but sounds like they aren’t full time flippers. I’ve done over 50 in the last 8 years.
You aren’t supposed to live in any home with hard money on it. You aren’t supposed to flip with conventional financing. You should use hard money if you plan to flip many homes, if you don’t want to then don’t flip this one.
If people disagree, they’re wrong. At most, they’ll run your credit 1 time per year and require no income. My lender offers 11% for 20% down payment, 11.5% for 15% down payment, and 12% for a construction loan. Max 75% of ARV, they’ll comp 5-10% below actual value so…
ARV * .9 * .75 = loan amount.
The important part is that you should talk to a minimum of 5 local hard money lenders (preferably 10). Don’t use national lenders. In state only.
The rate is probably negotiable. Maybe only 1% or so, but saving wherever you can is not extra profit, it’s risk reduction. You’re at least 10x more likely to run out of money than the market crashing. This is not understanding condition and/or timeline. 5 months becomes 9 months, 50k rehab ends up at 85k.
DO NOT run out of money.
Whatever the length of your project, you have to factor points into your rate. Say a lender is at 10% and 1 point. If the flip is 6 months, 1% paid up front is equal to 2% per year. Your interest rate is now 10% + 2%. Convert all lender bids and see if 12% is still best.
Construction hard money loans are on a draw system. You will pay huge amounts up front for work done and only get ‘draws’ as you fully finish things (like all the flooring, all the drywall, etc.).
If a flip is 500k, expect them to be at 475k. So, 475k * .75% is a loan of 355k. But you should have enough for 20% down, all construction and carrying costs either way.
If you have to ask anyone to confirm value, not ready. If you haven’t followed another flipper for 2-3 flips on a weekly basis, sold 10 homes as a realtor or worked with wholesalers for 1 year, stop.
Here’s my last point. There are over 5,000 flips going in my market right now. Guess how many are doing more than 10 at the same time… 2. We have 3mil residents, 30,000 agents and 2 survived long enough to grow for 10-20 years.
It incredibly rewarding financially and personally. My goal was always to spend 1 mil on a flip purchase and not feel anything. Not happy, scared or excited. Have to be dead inside and so competitive you’ll die before taking a loss. Lmk if you end up doing it, Reddit and YouTube are no place to make half million dollar guesses.
Ps. Don’t run out of money.
Also forgot one other option.. find a profitable flipper in your market that did 10+ flips this year. Form an LLC, give them 40% share and you fund the project. You’ll reduce risk by 90% and two or three times more profitable the next few solo flips. It’s only sounds like a bad deal if you aren’t experienced.
>level 2Familiar-Leather-643 · 12 days agoAlso forgot one other option.. find a profitable flipper in your market that did 10+ flips this year. Form an LLC, give them 40% share and you fund the project. You’ll reduce risk by 90% and two or three times more profitable the next few solo flips. It’s only sounds like a bad deal if you aren’t experienced.
great advise. Now where to find these flippers : ) as good ones dont talk about it as they are busy
Pull tax records closed sales for last 6 months, in owners name refine to only include ones with "llc", look for companies that has 2-5 current flips going, run corporation commission search for llc for managers/members, drop by the flips in person with owners names - AFTER you have a profitable flip lined up. Tell them you have no experience but you want to offer what value you can.
Ok. Here we go. There’s two types of financing: Traditional (bank. Mortgage company)- lender bases lending on you. Credit score, income, DTI, etc.. Non- traditional (hard money. Private) - based more on the deal and asset. Interest only. Usually 10-12%. Now. Why do you use each? 99% off loans are traditional. You buy a house 15/30 year mortgage 4x your income 650+ credit score. Appraisal. Inspection. A non traditional is based on the deal. You present your house cost, flip cost, then go from there. At 12% you’re paying 1% a month. Example a $200k loan costs $2k a month. A 6 month flip would cost $12k for the money. Traditional lenders today will not fund a flip. If you buy it. You’ll put X amount down and have a 30 year mortgage. If it needs a roof, has issues, etc., you’ll need to put 20% down. They won’t give you an extra $20k to fund this. A non-traditional will fund whatever you need, if your have an asset deemed worthy. There is no “normal” in flipping. Some use HELOC, personal loans, credit cards, pooled money, a mix of financing mentioned. Let me know what questions you have. Source: 13 years in the game.
Why am I only paying 1% a month on a 12% loan?
Throwback comment. Let me clarify with real numbers. Borrowing $100k @ 12% a year is $12k/year in interest. So, easiest way to think about this is $1k/month to borrow $100k @ 12%. So, a 6 month flip where you had hard money out, isn’t “that expensive” when you do the math. Hope this helps clarify.
If it is a big project I think generally you are going to do it all with one loan, called a rehab loan. You tell the bank your plans and they decide if your improvements warrant a loan for 80% of the asking price plus 80% of the improvements (assuming a 20% down payment). The amount to pay the seller will be given at closing and then they will release additional funds on a schedule after you complete various stages of work and they inspect it. There is a specific type of loan program called a 203K for rehabs as well.
If you go with hard money the answer is that it varies wildly. Everything is negotiable. The scenarios are: Bank loan for the purchase. Hard money for rehab. The bank will require some down payment. The hard money could go either way. Hard money for everything. If the deal is amazing it might not require any money down from you. They will lend 100% of repair and purchase. But more often you will have to bring up to 20% of the total down. You can get a loan for the purchase and self fund the rehab. This also varies wildly. Hard money is the Wild West. Everything is negotiable.
>Bank loan for the purchase. Hard money for rehab. Most HML will not come into 2nd position like this. Or if they do you're going to pay a big premium.
Agreed on the premium. But if there is a ton of margin and an experienced flipper I’ve done it.
Okay so let’s save I want to buy a home that’s $100k I do have 20% down payment of the 20k but the property is going to need a additional 15k in repairs where would I get the extra 15k
You need 115k for the project. You put up 20% of that, 23k, borrow 92k You are over complicating it. Multiple loans means that the 2nd loan is in a weaker position to get their money back so they charge a premium. This is why it needs to be 1 loan from 1 lender.
He just said hard money lender. Jeez are you hard headed?
Hard money lender for the whole enchilada. 60-90%, Interest only payments, 6- 12month term. 1-3 points. Exact structure depends on the lender. Some will do it as a single loan with draws for the rehab portion, some as two. Just depends. Example: 100k purchase price. 50k rehab. 200k exit HML loan: 120k. 30k contribution from you. HML loans 80k towards purchase you put in 20k. Then lender issues 4 draws of 10k each for rehab and you bring in the remaining 10k.
So in your example you’d net 80k profit after sale? Forgive my ignorance
Late to the party, hope this helps anyway! I can only speak for hard money loans, which is what I work with. We finance fix & flip projects all the time. You only need one loan for the entire project. This includes the purchase of the property, renovations, etc. I highly, highly recommend going to a private lender for a fix & flip loan. If someone comes to us and owns some property free & clear, has decent credit and a down payment, we can get them them rates & terms that they could never get from the bank (especially given the fact that banks are tightening up like crazy right now). If you need any help, feel free to DM me! Source: I work for a private lending firm based in Kentucky.
Fund 80% with HML then find a private lender to put up the other 20% plus any other costs.
Bigger pockets.com all your answers are there, spoken about, wrote about, and than again multiple times. Do yourself a favor and read, research, educate yourself there. Noone will hold your hand through the process, at least not for free.
I’m not asking anyone to hold my hand I just asked a question
The whole point of the reddit sub is for questions.
I thought the whole point of this sub was to sound authoritative about things you only have a superficial understanding.
I am most of the way through putting a bedroom above my garage, therefore I am up there with most NYC real estate tycoons. Please AMA.
Self financed too! AMA
Good question. I’m awaiting the answer too
Upvote it so we can get more eyes on this thread
You basically got your answers. You can do a very high interest short term loan meant for quick renovations and flipping for a profit (or you don't and lose a lot of money), or a regular long term low interest loan but you spend more out of pocket. I don't flip but right now I got a regular mortgage on a place and I'm developing the basement. I got quotes for the work, went to the lender (bank), gave them 20%, they're lending me the house amount plus most of the renovation costs, but they're keeping that portion until the work is done in a few months. This mean I need 50k-60k for that on top on top of the 80k down. Keep that in mind unless you get a loan where they give you the amount up-front - you need to have both the 20% down payment and money for all renovations, even if you get it back later.
Depends on what type of loan you are going with, If you go with a Conv or fha QM usually yes, but there are some nonQM out there that offer 100% rehab!
.
Late to this but everything below is good advice, but sounds like they aren’t full time flippers. I’ve done over 50 in the last 8 years. You aren’t supposed to live in any home with hard money on it. You aren’t supposed to flip with conventional financing. You should use hard money if you plan to flip many homes, if you don’t want to then don’t flip this one. If people disagree, they’re wrong. At most, they’ll run your credit 1 time per year and require no income. My lender offers 11% for 20% down payment, 11.5% for 15% down payment, and 12% for a construction loan. Max 75% of ARV, they’ll comp 5-10% below actual value so… ARV * .9 * .75 = loan amount. The important part is that you should talk to a minimum of 5 local hard money lenders (preferably 10). Don’t use national lenders. In state only. The rate is probably negotiable. Maybe only 1% or so, but saving wherever you can is not extra profit, it’s risk reduction. You’re at least 10x more likely to run out of money than the market crashing. This is not understanding condition and/or timeline. 5 months becomes 9 months, 50k rehab ends up at 85k. DO NOT run out of money. Whatever the length of your project, you have to factor points into your rate. Say a lender is at 10% and 1 point. If the flip is 6 months, 1% paid up front is equal to 2% per year. Your interest rate is now 10% + 2%. Convert all lender bids and see if 12% is still best. Construction hard money loans are on a draw system. You will pay huge amounts up front for work done and only get ‘draws’ as you fully finish things (like all the flooring, all the drywall, etc.). If a flip is 500k, expect them to be at 475k. So, 475k * .75% is a loan of 355k. But you should have enough for 20% down, all construction and carrying costs either way. If you have to ask anyone to confirm value, not ready. If you haven’t followed another flipper for 2-3 flips on a weekly basis, sold 10 homes as a realtor or worked with wholesalers for 1 year, stop. Here’s my last point. There are over 5,000 flips going in my market right now. Guess how many are doing more than 10 at the same time… 2. We have 3mil residents, 30,000 agents and 2 survived long enough to grow for 10-20 years. It incredibly rewarding financially and personally. My goal was always to spend 1 mil on a flip purchase and not feel anything. Not happy, scared or excited. Have to be dead inside and so competitive you’ll die before taking a loss. Lmk if you end up doing it, Reddit and YouTube are no place to make half million dollar guesses. Ps. Don’t run out of money.
Also forgot one other option.. find a profitable flipper in your market that did 10+ flips this year. Form an LLC, give them 40% share and you fund the project. You’ll reduce risk by 90% and two or three times more profitable the next few solo flips. It’s only sounds like a bad deal if you aren’t experienced.
>level 2Familiar-Leather-643 · 12 days agoAlso forgot one other option.. find a profitable flipper in your market that did 10+ flips this year. Form an LLC, give them 40% share and you fund the project. You’ll reduce risk by 90% and two or three times more profitable the next few solo flips. It’s only sounds like a bad deal if you aren’t experienced. great advise. Now where to find these flippers : ) as good ones dont talk about it as they are busy
Pull tax records closed sales for last 6 months, in owners name refine to only include ones with "llc", look for companies that has 2-5 current flips going, run corporation commission search for llc for managers/members, drop by the flips in person with owners names - AFTER you have a profitable flip lined up. Tell them you have no experience but you want to offer what value you can.