Financial Structure for Flips

[Account Closed]

Hello everyone. I am preparing for my first flip. I enjoy reading about individuals success on this site and plan on being an active member.

I haven't met with any banks yet but working on my financial model and trying to predict what I should expect for LTV.

My mom flips houses in South Jersey and typically puts down 30% with a local bank, so 70% LTV. She has successfully flipped 7-8 homes, so has a relationship with a banker and a proven record.

While I have no track record in flipping houses, I am trying to put down as little equity as possible using a local bank. I plan on meeting with 3-5 banks and seeing what the market is dictating.

Wanted to ask the group how everyone is financing deals in terms of capital structure? I'm also considering using outside equity from one or two friends.

My first target deal is:

Single Family Home

On market, short sale, foreclosed

Under ~$125,000 purchase

3 bed/2 bath

1200+ square feet

.15+ acres

South Jersey market

Target Timeline: Gut renovated property, exit in under 5-6 months.

Financial Structure: Ideally 75%-80% LTV, equity 50/50 between my partner and myself.

Sample deal we have been analyzing:

-Purchase $99,000 (made offer on a short sale, listed at $110,000)

-Renovation $40,000

-ARV (based on comps) $205,000

Meets 70% Rule: ARV 205,000 x 70% = $143,000 - repairs $40,000 = $103,000 purchase price.

Profit (accounting for holding costs/financing costs/etc): ~$40,000

The house is a 2 bedroom/1 bathroom right now. Its on a tree lined street, neighborhood I am familiar with and comps out ARC at $205,000 - $210,000. The basement is massive and will finishing it and adding a full bathroom will increase the livable square footage from 1300 to 1700.

Thanks.

[Michael Murray]

Ask your Mom! She sounds like she is doing well and good source for information.