How’s should I fund my first flip

[John Paul]

Hey guys so I have a quick question , my friend and I have finally decided to pull the trigger and buy our first flip . To keep things short and sweet I wanted opinions and how I should fund my portion of this flip . Some background I inherited a property in downtown bk along with my brother and sister that’s worth around 3.7 a couple of years ago . I decided to turn the property into a duplex so I refinanced for 420k and the gross rent is expected to be around 10k a month for the rental ( work is still ongoing ) . My question is liquid I’m kind of strapped right now but I do have a lot of equity in this Brooklyn property , do you guys think I should see about maybe a heloc on the property to fund this deal or maybe look for a non traditional lender . Any input would be greatly appreciated

[Mike Klarman]

So, John, anytime someone wants to tap into a HELOC, I always tell them to write a plan out first for the money and how much do they need access to.

I'd ask myself these questions....

What is the max out of pocket I'd like to go on a single deal?

What markets does that put me in?

What is the estimated amount of time I expect to be in and out of this project?

What is my expected Cash on cash return after all costs?

What is the average days on market/market rents for the area?

Have a solid plan.  My suggestions, take it or leave it, cause I see you are in Staten Island and I know the entry point for that market is insanely high, but there are plenty of markets where you can be into a deal all in for 30k: That's down payment, closing costs, insurance, holding costs, and kicking start money to the contractor.  In Staten Island that would probably be closer to 100k needed.

There's many, many markets between western PA and the Colorado rockies where investors can play the game at beginner Capital requirements. I'm saying this cause why dig into a HELOC for a big deal when you can grab a small amount and use that to start making money that you can then use and payoff the Heloc after the deal and use profits for the next.

I always advise my clients to start small and build, that's the only way to scale.  Make money and then use that money to scale.