Private Money Lender on potential flip.

[Sean Connolly]

Hello everyone.

I have a potential flip in a desirable area. It is a Freddie Mac owned property in a town about 20minutes away. I have seen the property, run the numbers, and see it as a very good investment.

1940 Colonial, 1200sqft living space. 2 (Possibly 3) Bedroom, 1 Bath. Partially finished basement. very large kitchen, with patio, porch, 2 stall heated and wired garage.

Repairs:

Needs a roof, replacement cabinet doors, some wood trim, new appliances, and a new kitchen floor.

Asking price: 185,500

ARV: 230,000

Estimated offer 155,000

Here is my dilemma. I am a firefighter/paramedic and I am forced to live in the town I work in, therefore owner/occupant is out of the question. I only have enough cash for about 10% and it requires 20% as an investment property. Does anyone know of any ways around this? Or possible ways of finding private money lenders? Any tips are very appreciated.

[Ann Bellamy]

Sean, one of the biggest problems if you are borrowing hard money is doing the work yourself, especially if you work a job. While you only work 2 24 hour days, it will always go slower than a good contractor. The issue with this is that the interest, taxes and insurance and utility clock is ticking, so what you think you are saving by doing it yourself, turns into pretty much nothing because time eats your profit. Typically you are generally slower than a team of contractors, even if you are working full time on the project.

Just for giggles, lets assume you borrow $150K. If you can get 12 percent interest, grab it, you are new. That will cost $1500 per month in interest payments. Taxes are $225/mo, and insurance will run about 100/mo on an empty house being rehabbed, plus somel electricity and water. Let's say $1900/mo. If it takes you 4 months to do the work instead of 4 weeks, that is $5700 that you could have paid to a contractor to get it done in 4 weeks, get it on the market and not miss the summer market.

And if you make lots of mistakes, like most new investors do (not a criticism, you just don't know what you don't know yet) it will take longer than you think

Let's say you close by mid-May, finish rehab by July 1, you now have the summer to sell it. If you close by mid-May, finish rehab by October 1, you're in the fall market, and if it doesn't sell fast, you could heat it for the winter plus have all those extra months of holding costs.

Why am I being the forecaster of doom? Because I've seen it happen too many times. Just something to think about when you're calculating your numbers. Either get a partner if you're doing work yourself, or if you use hard money, hire a good contractor.