How can I bridge the gap?

Question

Hi BP Family!

I am fairly new to REI still. Have been on the browse for the right deal for me to dive into my first flip. I have gotten pre-approval on HML already, good credit score, and found a wonderful potential deal. Thing is - after closing costs for purchasing, I will be low on OOP cash for other things during the process. I am wondering if anyone could advise me on how to better bridge the gap between rehab, holding, and selling costs? How can I obtain more financing so I don't go broke trying to finance my first flip - which of course is bound to have several unexpected expenses along the way.

Should I look into getting a personal line of credit? Or unsecured line of credit? or a personal small loan?

Please help me :-(

Lee Nugent · Answer

Partner with someone or use a 100% funding option. I've done some PML for people that covers purchase and the rehab in a series of draws. It is really dependent on the deal and their experience with me. Check your sphere for people that may do private lending as well and you may be pleasantly surprised. There are a number of ways to structure the deals

Lee Nugent · Answer

@Sparkle Carlock your sphere is consisted of the people around you that you have direct influence with. People that know you and you have existing relationships with. Those are people closest to you tha know, like and trust you that may be able to fund your projects. I hope this helps!

Daren H. · Answer

Because you are new to this still (your words), I would seriously look at doing your first few deals with a partner like someone alluded to above. If you can find great deals, someone will provide the money or access to it in exchange for a piece of the pie. You can get a great education and a slice of the pie. Primary concern here is you have to make sure you don't get into a deal with a crook. Find someone reputable and trustworthy in your market by asking around from people you trust and are in the business. Purchasing a deal, renovating, financing it, without proper experience and limited funds can be a recipe for disaster. I would say you even need someone experienced in your market to assure you that you actually have a deal.

Sparkle Carlock · Answer

@Lee Nugent Thank yuo for your input here! I truly appreciate it. Question: what is a "sphere" to check into? Perhaps I do not understand the term. I do not at this time have any personal PML options but in the future, I love to know how to find them and begin a relationship.

Sparkle Carlock · Answer

@Andrew Postell, Thank you for your input here. Just curious, with your once only $7k. How did you come out on that first property? How did you end up financing it overall to flip/rent the property, if you don't mind sharing? Because sometimes, that is all some new investors may have... very little cash on hand.

Andrew Postell · Answer

@Sparkle Carlock being LOW on cash is a perpetual problem for all real estate investors (and "low" is open to interpretation so I get that).  Technically, we don't want to have a lot of cash in the bank - we want it out working for us.  So, if you have enough to execute on a property...you should be building in a 10% buffer on your contract costs (at least, that's what many of us do) and that way even if you do have overage in expesnse you have budgeted for it.  You should be using the standard calculations for your holding, acquisition, closing, selling costs...but it's the rehab that usually is the hardest piece for many.  Add 10% on your budget for safety.

Now, I want to add two things here if you don't mind.  My first property, I used my life savings on - it was a $7,000 home.  That's all I had.  I didn't have any other options.  I was limited on what I could do.  So let's say you can only come out of pocket $10,000 on your flip.  Well, that means we know what our offers need to be at, right?  Whatever the numbers end up being, your offer/ deal structure should only have you coming out of pocket $10k.  That means you will be limited to what you can do but that's all we can do.  That is, unless as mentioned above, we partner with someone which means we give up our profits to them as well.

The second thing that I want to point out here is on your prequalification.  Now, maybe this doesn't apply...but maybe...and if anyone else is reading this post this would be important to understand - If your prequalification states that you need $30,000 to close on a property...and you don't have $30k...that means you are not prequalified.  You should NOT have a prequalificaiton letter for that scenario.  If you need money you don't have - you are not prequalified.  I am mentioning this because sometimes that does happen and people get stuck.  I am sure that isn't happening here so please forgive me for even mentioning it but sometimes others read these posts so maybe this is more for them.

Real estate has risk.  I don't want to sugar coat it.  Being LOW on funds is part of our problem - always.

How can I bridge the gap?

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