Money for a flip-best way to fund?

Question

Hi Everybody!!

Curious on everyone's thoughts here. I'm looking at potentially doing a flip with a partner. Partner is going to purchase the property all cash. I'm going to fund the remodel and manage the project and then we will split the profits when we sell. I'm looking at several different ways to fund the remodel and wanted to get input from everyone. I'm looking at the following options:

1. cash-I have the cash and could do so, but don't know that I want to tie up the money (50-100k remodel)

2. credit cards-I hear all the time that credit cards might be a great way to go. If so, curious as to which might have the best cash advance options or if I just pay for everything retroactively via cards.

3. personal loan- as far as I know, most personal loans have interest rates that are lower than general credit cards, which would be nice. However, if I do this flip efficiently, hopefully I only have the loan for 4 months.

4. construction loan-there is a developer in my area who I met who said he was getting rates at about 6% for construction loans and maybe that makes the most sense.

I probably need some sort of equation to determine what exactly would be the right for me and this process. In an ideal world, I've got a very low interest rate for 3-6 months (below 5% would be grand), or 0% interest until a certain date when there is a balloon payment or an interest rate higher than 0%. Let me know what you all think. As always, thank you so much for your input!!!

JD Martin · Answer

I pay it off in full before there's any rate change. The key to this strategy is first, to be sure you can pay it off in full before the end of the term, and second, to not put any other charge on the card after you have used the transfer check. If you do, you're going to pay full interest on the charge until you finish off the transfer.

As I showed above, if you do this right you can actually end up with money in your pocket. I have the cash reserves that I could pay off the transfer at any time, so it's just another way of leveraging other money for (virtually) free.

Joe Homs · Answer

@Jordan Puffer  I have no idea about Michigan, but in California we have very few deals that everyone fights for on a daily basis.  I use cash and hard money to fund my deals up to 100% since I have been in this business over 40 years, so money is not the issue for me.  Deals are.  I am closing on two and working on two more right now.  These deals are from Wholesalers, networking and good old fashion MLS.

Sources of funds: Business partners, family and friends, 401K, Hard money, cash, etc.

Good Investing...

JD Martin · Answer

In the past several years, I have used Bank of America @ 3% 18 months, Capital One @2% 18 months, Discover @2% 12 months, Chase Amazon @1% 18 months, USAA Visa @0% 18 months, Barclay Visa @0% 12 months. I have American Express Blue and Citi MC, both cash back cards, that then fund purchases, so it looks something like this:

10k @ 2% 12 months = $200 interest.

Purchase 10k of materials with Citi MC @2% cash back = $200 cash back.

Total costs to me: $0

And if you get a 0% card, then you actually end up with more money back in your pocket than you started with.

Kristina Heimstaedt · Answer

@Jd Martin You're speaking my language!! I manage my parent's portfolio and that was how I learned about the power of lending. They have 7/1 Arms at 20-30% down with properties that have more than doubled in value. To add to that, all the properties generate 10-15% rates of return (Southern California pricing) with room to grow. I want to get in and I see some secondary housing market flips as my best opportunity prior to house hacking and going bananas.

Thank you so much again!!

Kristina Heimstaedt · Answer

Best news yet!! Thank you so much. Next question: are you using American Express? I have great credit and I'm confident that I could get a card from anyone, so what companies provide 0-2% interest rates. I would love to get my hands on one of those!! Thank you again @Jd Martin

JD Martin · Answer

I have self-funded all of my rehab projects. I have used cash, HELOC, 0-2% interest cards. My favorite approach has been the 0-2% interest cards, which are generally 0% interest for a fixed term (mine have been 12-18 months) with either no initial fee, or up to 3% fee (over 18 months, which works out to 2% annual). I have actually bought a couple of houses this way (boy, would I love to show up to a closing and say "Just put it on my American Express" :D ), but in any case it allows me to keep my cash available for offers. Foreclosures here usually require some proof of funds for cash offers, and doing it that way allows the balance sheets to stay healthy while the rehabs complete, and then either the cash pays off the card in bulk or the tenancy pays it off in time. These are generally low-expense rehabs though, about $10-15k in total. Also, the interest involved can become part of the basis of the home, increasing your depreciation benefits slightly.

Kristina Heimstaedt · Answer

Hi @Antoine Martel. Still trying to figure this out including timing. I'm actually looking at the San Bernadino Mountains. Housing is insanely cheap in comparison to Orange County pricing. There's a large blue collar community capable of the rehab work. And I'm going in with the concept that Gen Xers have become stable and upgraded their personal homes. Next on the list is typically a little weekend place which is exactly where this market comes into play.

Thanks for the input!!

Michael Farrugia · Answer

@Jd Martin That is a great idea, as appose to using a HML line of credit to fund job material. Your strategy is you take advantage of the 12-18months benefits of these cards, do you cancel/change the card once the rates get jacked up?

Ian Walsh · Answer

Part of deciding this is risk tolerance as well.  The cheapest way to flip is with your own cash but that can also cause a lot of stress.  Short term money isn't expensive if used correctly.

Money for a flip-best way to fund?

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