Hard Money vs Conventinal on Flip

[Cody Bernardy]

Hey BP,

It's my first post :) So I'm 22 years old, with a pretty good career and no debt (I net about $75k a year). I'm looking to flip my first property in Tacoma Washington and I have not figured out my financing out. I have been flipping back and forth between a Conv Loan or going with a hard money lender to try and scoop a home off the market (mail in). I'm aware HML has a higher interest rate, but it gives me an advantage to get a better deal on a home, whereas a bank would want a home on the market (correct me if I'm wrong at all, still fresh meat :) ).

Also, if anyone is in the Tacoma/Seattle area that would like to mentor me, I'm willing to donate my time and money for your experience.

Thank you

[Christopher Phillips]

@Cody Bernardy

You won't be able to get a conventional loan on a flip. You can't get a conventional loan on a home with substantial condition issues, what they call "not mortgageable."

That leaves you with cash funded purchases or FHA 203K loan. But you can't use 203K for a flip, it's for owner occupied homes only.

This is why people use hard money loans or private money loans.

You also after to consider the money you'll need for rehab and closing costs.

A HML will fund up to a certain point like 75%-90% of after repair value, which gets you the purchase price and the rehab dollars, with a down payment in either up front points or some closing fees and points. However, HML are for short term use only like 6 to 12 months (sometimes a little longer). Full payment is due at end of term period. So, you have to make sure that you have a well laid out plan to do the rehab and quickly sell the home.