First go at a flip—funding?

[Phil Hucke]

Going into this with high hopes and plenty of newbie enthusiasm, which means I’m probably going to get a lot of “experience “. 

Formed an LLC to run the venture as a business, and I've already bought a property for 25k, planning on a significant rehab in the 50-60k range with added sweat equity. It's in my neighborhood and I have lots of construction experience myself. Comps when finished have been going 130-160k and climbing.

I might be able to self finance by stretching my personal finances and credit pretty far, but I’d rather get a business loan for the work. With a brand new business, and myself being new to the finance end of things, I’m already seeing banks walk slowly backwards out the door when I start talking. I should be able to turn out the rehab in 9 months to a year at most.  Should I pursue a hard money type loan, or keep knocking on bank gates?  Get a traditional mortgage, even if I’m selling it in a year? Thoughts?

[Christopher Phillips]

@Phil Hucke

You typically can’t get traditional financing on highly distressed property. Rehabs should really be in the 6-8 week target range. Time is money when it comes to flips due to the carrying costs. The longer it takes the more money you’re losing.

Traditionally, you would use hard money, but many might not want to get involved under $100k. So, it will depend. Some might do for 65% after repair value which would be in the purchase and repair value range you’re looking to do. You’ll have to fund closing/points out of pocket to have some skin in the game.

Other option would be to find a partner that can fund everything with cash.