Requirements of portfolio and private money lenders

[Michael O'Byrne]

We are just starting to flip houses, and have decided to go at it full time which means I retired from my old day job. We have some cash on hand to start with, enough for 3-4 all cash deals of typical size (for Houston rehabs), or 8 - 10 deals if we used hard money via wholesalers. We have run some numbers, and the hard money route gives us opportunity to do more deals (concurrent) and the returns look better than all cash based on sheer volume, despite the extra financing costs and lower profit/deal. We are risk-takers, so we are looking to get all of the money out there working for us, along with fast turnover. That said, finding our own deals and using cheaper money is a big short term objective to make our deals more profitable, which means finding portfolio lenders and private money.

My question is, with no current income (no real DTI ratio) can I expect to secure financing without showing any revenue from the new business as yet? I assume that credibility is a big issue, I can't point to any investing successes yet as we are just getting started. If so, I would love to hear some examples and suggestions from those who have been down this road. Thanks!

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[Jon Holdman]

Portfolio lenders are banks, credit unions and the like and so apply similar rules as for conventional loans. So, getting a loan with no income will be very tough.

Private lender, OTOH, are people you know personally. So, they may well be willing to invest in your business, even without income.

That said, I think there would be merit to doing a few deals with your own cash. Get a track record, take a few lessons from the school of hard knocks and you'll have something to take to private and hard money lenders.