Financing advice with an interesting situation

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Financing advice with an interesting situation

John Conner
Tampa, FL · Member since 2013 · 24 posts · 2 votes

Hey guys,

I am looking to start buying and flipping houses with 2 friends but I am in a unique situation. I am in the middle of buying a house with my GF that we plan on rehabbing over the next 2 years and selling it. It doesnt need anything immediately and I got it for a great price. I will have around 12500 to invest once I close on the main residence and my friends are looking to invest around 10k each putting us at a total of 32500. Here is where it gets tricky... I make around 2200 a month and the mortgage for my house will be 1300. My gf works as a nanny off the books while she goes to school so I cant use her income. I have 780-800 credit but my friends have somewhat bad credit and dont have jobs currently. They are doing side jobs to make money for their rent. How should I look into starting the business with my 2 friends? Should I start a LLC with them and make an agreement? How can we get funding? I dont believe we will be able to get the funding from a bank with my mortgage payment being so high and them not having jobs on paper. Any advice would be appreciated.

Thank you,

John

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    11y

    It sounds like you have a reasonable amount of cash to work with. I would think with that kind of cash to put "Skin in the game" you should be able to get "hard money" for flips. Keep in mind that many banks generally don't lend on flips anyway. 

    That said, you should question your plan. You want to partner with two people who have bad credit, and I assume none of you have experience. You personal debt to income is very high. This is not just a factor in getting loans it is a major factor in personally staying afloat financially.

    Get the first deal done, rehabbed and sold. Then consider how to move forward.

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  • John Conner
    OP
    Tampa, FL · Member since 2013 · 24 posts · 2 votes
    11y

    They both have experience with landlording and basic rehabing. I have known them forever and have had a bit of bad luck. I believe that hard money would be the best option but I was looking for that to be our last option. With houses moving in my area very fast, how is it possible to get the time to show the hard money lender the deal without it being bought out first? Do they provide a proof of funds just like a bank? or do you have to show them the deal first? @Ned Carey

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  • Pat G.
    Rental Property Investor · Northville, MI · Member since 2015 · 179 posts · 92 votes
    11y

    John:

    Congrats on the new house. You can do this two ways. 

    1. "Pool" your money with an operating agreement for the LLC that spells out everything (who does what, who invests what %, etc.) then find private lenders who will loan you the money to purchase the homes, not banks.

    Use your pooled money for down payments and the like, if you have to, but use the bulk of the investors funds to purchase and rehad the home

    Make your friends have non-voting rights in the LLC and say that they can't touches their money for X period.

    You are correct on the additional loans from banks.

    2. Create an LLC and build business credit for it with a Duns Number and then get lines of unsecured credit in the name of the LLC and off your and your friends credit reports. This way is slower and could take up to 6 months. - This is how the pros do it.

    Good luck

    Pat Gage

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  • John Conner
    OP
    Tampa, FL · Member since 2013 · 24 posts · 2 votes
    11y

    @Pat G. Thank you for that response! 

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    11y

    @John Conner yes hard money lenders can provide proof of funds letters. In general with most lenders they would like to get to know you first. You can discuss their terms and what they expect and what they can provide.

    However I know of some hard money lenders that don't want to be bothered until you find a deal. The only way you know that is to talk to them first. Hard money lenders can work much faster than banks or other traditional lenders.

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  • Account Closed
    Miami, FL · Member since 2015 · 161 posts · 26 votes
    11y

    @John Conner Hard money is an asset based loan so credit or income is irrelevant. It plays a very minor role. As a hard money lender it's all about property. Purchase price, down payment and value.  If you have any questions on process feel free to pm me. 

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