Fix and Flip Loan Product

[Jalen DeVine]

How do you feel about this financing option? 

Fix and Flip Loan Product:

Financing covers acquisition and rehab 

Cash required: 10% of acquisition and rehab cost

Rates 8.5% to 9.5%

Term 6-12 months

LTV Required 70% as completed value

Fees 2.25%

So it would look something like this...

Purchase $300,000

Rehab $50,000

Loan Amount = $350,000

Cash Required = $35,000

ARV would need to be (350,000 / 70%) = $500,000

Fees = $7,875

6 Months of Interest at 9.5% = $16,625

[Andy Sabisch]

So you sell for $500,000 less sales costs (say 8%) gives you $460,000

You borrowed $350,000 so you are making $110,000

Interest and loan fees are $24,500 leaving you with $85,500

The rehab number does not have a contingency called out so there would be at least another $5,000 leaving a net of $80,000,

For a 6 month project (assuming the timeline works), you are investing $35K to generate $80K and make $45K so yes, the numbers would work.

[Jalen DeVine]

Thanks for your reply Andy. 

I think this is a viable loan product! The hard part is finding properties in my market that meet the 70% ARV threshold.

[Robin Simon]

Not bad, but in this crazy and uncertain market its important to have max optionality and contingencies, especially in these types of investments where you can't be sure at all where the ARV is going to hit and an option to refi and hold (BRRRR) should be easy and on the table

[Andy Sabisch]

As Robin said, in today's market you need to have at least two exit strategies.  If you are only looking at the ARV and need that to make the deal work, you may find yourself in the group of investors that learn an expensive lesson.  Always make sure the ARV is conservative - never take the word of a wholesaler, a non-investor fluent agent or simply looking at what sold in the past year since the market in March - April - May was the peak in most areas.  

There is still money to be made and deals are out there but be safe in your estimates so you have a cushion that gives you the escapes you have on the table

[Jalen DeVine]

Agreed! Thank you for the replies!

[Eliott Elias]

That's a pretty good interest rate and fee cost. Has hard money interest rates increased since this post?

[Issac San Miguel]

Quote from @Eliott Elias:

That's a pretty good interest rate and fee cost. Has hard money interest rates increased since this post?

Yes and No - the lower the risk the lower the rate - 9.99% plays at 75% LTC for a Tier 1 borrower.

[Jalen DeVine]

Quote from @Eliott Elias:

That's a pretty good interest rate and fee cost. Has hard money interest rates increased since this post?

Those rates are the updated ones. In January of 2022, the rates on this loan product started at 6.75%