Scaling flip business needs private funding suggestions!

[Gus Muller]

Hello BP community. Our company True Neighbor is gaining traction for scaling fix and flips. We completed 3 in 2019, 9 in 2020, and we are set to complete 10 already this year by April/May. 

We currently have $3MM in bank funding in two $1.5MM pre-authorized lines of credit for the purchases. Our banks will fund 75% of the purchase price and 75% of the rehab costs. We have used these lines of credit for about a year and they have been going well. Interest only and rate is under 5%.

So far, we've been personally funding the 25% down payments plus holding costs for every project, and have relied on private money for times when we are running cash tight. We have been paying a flat 10% rate on these loans and turnaround has been 4-6 months (the time it usually takes to acquire, rehab, and resell the properties).

Our accountant thinks this is way too much to pay, and is suggesting we try and source private money with a longer term so we can put that money to work multiple times. But we don't want to borrow too much money and end up with a surplus that doesn't get used and just costs us interest.

We hired a CFO consulting company that built us out a projections model, indicating the times in 2021 that we will need more funding based on our goal of 24+ this year.

Does anyone have suggestions or experience in structuring some private money filling in the 25% gap in our existing bank funding? I know it is all negotiable. We've been asked how to collateralize the private loans. We have brought private money in on the beginning of the deals by having them put down the 25% and putting them in 2nd lien position, which has worked. But if we are looking for investors to loan $100K+ this isn't feasible.

Our goal for this year is 24+ completed and closed out flips which we are very on track to complete. And we would like to scale to 50+ in 2022, and 100+ in 2023.

I am getting to the point that I feel we can stop using our own personal capital, and have gained enough trust from investors that they are asking to jump in. I need help structuring this out. If anyone has direct experience with this type of growth and situation, please reach out! THANK YOU!!!