It takes money to make money I guess

[Derek Young]

So I'm stuck and frustrated, can anyone help on some recommendations...

My partner and I have approximately a $20k-$30k down payment for a property and would like to get a quick injection of cash by doing a low risk flip. We have a property picked out listed for $105k (REO) and confident that based on comps it would be a quick sale at $130k and maybe a little more aggressive for $140k. The house is in need of minor cosmetics, carpet replaced with hardwood and minor kitchen and bath remodels. If they would accept an offer of $90k-$95k then we would stand to make a profit of between $15k-$25k.

Is there a way that we can finance this conventionally and finance construction costs or are we out of luck?

I have been working with a mortgage advisor but the only package of products he can offer is the 203k, 203k streamline, and the Fannie Mae Home Path loan which won't let you resell.

If there is no way to do this, then I guess my strategy will have to change %100 as we would not be able to afford a large down payment if we can't find a way to finance the rehab costs somewhere.

[Mark Ferguson]

your only chance is finding a local portfolio lender or using hard money. You also need to list out all your costs to see where your profit is. I think your potential profit may be a little high.

[Brant Richardson]

A renovation loan will let you finance 80% of the purchase and the rehab. You have to use a licensed contractor to do the work though.

[Derek T.]

Derek first thing is to run AWAY from this deal.   Those are not good numbers even if you can pick it up at $90k.  Even if you can get the rehabs done for around $15k (which with a kitchen remodel,  bathroom remodels,  hardwood,  painting and other things that will be necessary it's highly doubtful you can get it done for $15k to get it to a flip level)  it is a bad deal. 

At $90k......you will have let's say $15k in rehabs (probably will be higher),  buying closing costs of let's says $4k,  holding costs of $3k, realtor fees of $8k,  selling closing costs of $4k, and whatever financing costs you have.  That's putting you at $124k without the financing charges.  So first off I would consider this a horrible flip deal. 

To answer your exact question, most banks are hard unless you are doing a 203k loan. Most of us use HML, private money, portfolio lenders or a LOC. To be honest with $20-30k you won't have enough to realistically flip IMO. Much of that money is going to be used for a down-payment and it will leave you will very little to fund the flip. You will need to front your flip before you can get draws and all of the work on the draw schedule must be done to get that draw. So in other works put $20k on the down payment and then front the first $8-10k of the rehab and then get reimbursed. Don't stretch yourself too thin. Save a little more and then invest. I would recommend $40k to start with.

[Derek Young]

Thanks guys, I appreciate the insight. I had a feeling that was the case and maybe I was trying to make it feel better than it actually was based on impatience.

@Mark Ferguson, I found your blog a few months ago and have not stopped reading it. Good stuff!

@Derek T. , thanks for the further breakdown on the numbers and the advice.

@Brant Richardson , thanks for the info although it sounds like that would be a bad idea in this case. I will keep it in mind if something else does pop up though.

[Albert Bui]

Originally posted by @Derek Young:

So I'm stuck and frustrated, can anyone help on some recommendations...

My partner and I have approximately a $20k-$30k down payment for a property and would like to get a quick injection of cash by doing a low risk flip. We have a property picked out listed for $105k (REO) and confident that based on comps it would be a quick sale at $130k and maybe a little more aggressive for $140k. The house is in need of minor cosmetics, carpet replaced with hardwood and minor kitchen and bath remodels. If they would accept an offer of $90k-$95k then we would stand to make a profit of between $15k-$25k.

Is there a way that we can finance this conventionally and finance construction costs or are we out of luck?

I have been working with a mortgage advisor but the only package of products he can offer is the 203k, 203k streamline, and the Fannie Mae Home Path loan which won't let you resell.

If there is no way to do this, then I guess my strategy will have to change %100 as we would not be able to afford a large down payment if we can't find a way to finance the rehab costs somewhere.

Something to note also is that 203k and 203k full consultant is only for owner occupants with FHA financing. You may have problems proving occupancy (primary) if you live in the area in a home that is more suitable as a primary than this subject property.

Also with Homepath there are non owner renovation loans but yes you may have some restrictions.

Have you considered using hard money with a construction loan feature ? If it still makes financial sense?