Which Path to take regarding Financing

[Colton Hamilton]

Hello BP!

I am currently struggling to figure out my financing path to my first real fix and flip. A little background on where I stand currently.

My personal bank account is nothing to brag about and but I would be able to come up with 10k-20k cash.

I am living in my primary residence that I just bought in July with barely any equity to it. The plan is to move in July and turn it into a rental property. Wanted to keep it under a primary mortgage so I can benefit from having the lower interest rate. 

I am working full time as a welder making 600-700 a week. 

I own one rental with $1150 rent income with a cashflow of $490. I only owe 71k on it and if I was to get it reappraised it would appraise between 130k-160k. New term for me but I finally get to use it in the correct context. The property was a BRRR.

I am actively seeking to possibly put a HELOC on my investment property in which I would use the funds for the rehab costs or if I could use those funds for a down-payment and closing cost on a property (I don't know if I can). Having a hard time finding a lender willing to do that (hard it was pretty scarce). Everyone I have reached out to wants to do a cash-out refinance (COR). A couple of them said 75% COR and one said 80% COR with a 5 year fixed amortized and a 15-20 year term with a 4-5% rate.

I am currently in talks with Lima One Capital but after reading some reviews I am pretty skeptical of them. I am wondering if searching out HMLs worth it more than traditional banks. I don't know anyone for Private Money Lenders although I have my father-in-law interested but he told me he doesn't have a lot of cash on hand as he invests most of his income else where. I am looking to get more details on what exactly he invest in and whether we could use that to leverage. 

A question off topic. For flipping houses do you need to hire a GC even if we know how to do most all the work ourselves? Or just have a GC sign off on the work that was done?

Thanks!

Colton

[Aldo Chandra]

Hey Colton

I believe the best way to go into flipping is finding the deal first. Once you are able to find a deal, you can provide that information to the HMLs. If the deal is really good, you might even avoid paying that down-payment.

However, if you do want to get to the technical side of things, here you go:

When you are going to refinance or HELOC on the property, you will get roughly $33k in cash minus the closing cost. On top of that, you can come up with $10k - $20k. Which puts you roughly $50k (more or less). Depending on your market, you may or may not purchase a property outright. If you can, that's great. You may even take Home Depot's loan to avoid high interest and points from HMLs. Credit cards with 0% APR for 12 months can be helpful in this situation. If this price range does not work in your market, then you can work with credit unions or portfolio lenders who are willing to lend to you. Usually the process is the same but they tend to be more lenient depending on who you work with.

For private lending, I would suggest getting to know more investors in forums, local REIA, or even your close circle. There will be people out there you can reach out to raise capital.

To answer your GC question, I would suggest learning everything yourself and take control of your investments. This may take a long-time and you can lose money if you take too long. However, the knowledge and experience are invaluable. Once you get a better understanding of the process of flipping a house, you can build systems around it that you know and start your own development company (if that is your goal). If what you are doing requires permits, then you will need a GC to work on that project.

Feel free to reach out to me for further questions.

Hope this helps!